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The Finance Ministry and the Reserve Bank of India (RBI) officials are likely to meet on June 30 to discuss the road map for setting up of the proposed public debt management agency (PDMA) and the monetary policy committee (MPC).
While the venue for the meeting has not been decided as yet - it could either be in Delhi's North Block, which houses the Finance Ministry, or the RBI headquarters in Fort, Mumbai - officials said the meeting will focus on the steps each body has to take in setting up the two agencies.
"PDMA and MPC have to go hand-in-hand, so we have to discuss it together," said a senior government official.
There are still differences to be ironed out between the RBI and the government regarding the MPC. While the finance ministry wants to adopt the recommendations of the Financial Services Legislative Reforms Commission (FSLRC), RBI wants it along the lines of suggestions made by the Expert Committee to Revise and Strengthen the Monetary Policy Framework, led by RBI Deputy Governor Urjit Patel.
The FSLRC has recommended seven members for the MPC, including the chairman (RBI Governor), one executive member from the RBI Board (likely to be a deputy governor of the RBI), and five members who will be independent experts in the field of monetary economics and finance. Three of the external members will be government nominees, while the remaining two will be picked by the government in consultation with RBI Governor.
The Urijit Patel panel has recommended a five-person MPC, with the RBI Governor as chairman, the deputy governor in-charge of monetary policy as vice-chairman, and the executive director in-charge of monetary policy as a member, in addition to two external experts to be decided by the chairman and the vice-chairman.
In addition, the FSLRC has recommended conditional veto power for the governor, in that he or she would have the power to override the MPC in exceptional circumstances, but be required to release a rationale statement in public, explaining the reasons for disagreeing with the MPC. The Urjit Patel panel, however, makes no mention of a veto power.
Sources have told Business Standard that the finance ministry is likely not keen on the veto power for the governor.
As for the PDMA, the changes in the RBI Act, enabling the formation of such an agency, were supposed to be part of this year's Finance Bill. But Finance Minister Arun Jaitley pulled those proposed changes at the last moment, citing the need for further discussions between the government and its central bank. There is now likely to be a separate PDMA Bill, and its formation is said to be at least two years away.
The government has recommended that RBI should cease to regulate currency derivative market and the responsibility should be handed to the capital market regulator, the Securities and Exchange Board of India (Sebi). However, the central bank has opposed the demand and isn't in favour of amending relevant sections in the RBI Act that would facilitate such a transfer of responsibility.
The RBI and the finance ministry have been at loggerheads over the formation of the PDMA, a proposal that was first mooted by the finance ministry in 2007. The independent agency would be responsible for issuing and managing public debt that would potentially resolve a conflict of interest the RBI now faces with its mandate to keep inflation in check and act as New Delhi's fund manager.
Earlier this month, RBI Governor Raghuram Rajan said that "deeper discussions" are required over the broader agenda of debt management functions moving away from the central bank when PDMA is formed.
