Cabinet note on monetary policy panel prepared: Sinha

The finance ministry has prepared a draft Cabinet note for the proposed monetary policy committee (MPC), the formation for which will have to be cleared by the Cabinet and Parliament, Minister of State for Finance Jayant Sinha said on Thursday.

"The note on MPC has been prepared. We have to see when it goes to the Cabinet. Ultimately, as you all know, it has to be placed in Parliament, so let us go through the processes as far as the monetary policy committee is concerned," Sinha told reporters in the sidelines of an event on Thursday.

Sinha said the government and the Reserve Bank of India (RBI) had reached a consensus on the MPC, reiterating the stance taken by Finance Secretary Rajiv Mehrishi last month. He did not elaborate on the composition as well as voting rights of the RBI governor in the MPC, which is to replace the current practice of the governor deciding on interest rate on advice of the technical advisory committee.

"We have to see how that note is put together and ultimately placed in Parliament," Sinha said when asked about the possible composition of the MPC. The government has proposed to set up the MPC, which will consist of representatives from the finance ministry and RBI to decide on interest rate. The revised draft of the Indian Financial Code, released by the finance ministry last month, had suggested doing away with the RBI governor's veto power and wants a seven-member MPC to take decisions by a majority vote.

Of the seven members, four would be government nominees and the rest from RBI. Reports suggest the consensus arrived at between the government and RBI is for a six-member committee with equal representation from each side and the governor having the casting vote. Under the current system, the governor is appointed by the government, but controls monetary policy and has a veto over the existing advisory committee of RBI members and outside appointees that sets rates.