'Draft financial code not last word on veto power'

The finance ministry on Friday sought to downplay a contentious suggestion by a government-appointed committee about taking away the veto power of the Reserve Bank of India governor in the proposed monetary policy committee (MPC).

It also highlighted the point that the committee was appointed by the previous United Progressive Alliance government and the incumbent one had common ground with the RBI governor on veto power.

The consultation paper on the Indian Financial Code was not the last word on the RBI's powers, said a senior finance ministry official. Other sources said the ministry had broad understanding with the RBI governor on veto rights.

The government had no intention of diluting the power or autonomy of the RBI, they said. They also underscored the point that a decision to grant veto power to the governor would be taken at the "highest" level.

On Thursday, a revised draft by the Financial Sector Legislative Reforms Commission (FSLRC) was put up on the finance ministry site. The draft suggested the RBI governor should not have veto power in the seven-member committee on fixing the policy interest rate to target inflation.

This was a departure from its earlier draft that had proposed entrusting the power to the governor in case of a conflict with the majority view.

"Decisions in a meeting of the monetary policy committee must be taken by a majority vote of the members present and voting," the revised draft said. The decisions would be binding and the central bank must form a committee to decide the rate, it suggested.

In case of a tie, the governor will have a second and casting vote. Five members are required for a quorum.

At present, the RBI governor consults a technical advisory committee, but does not necessarily go by the majority opinion while deciding on the monetary policy stance.

The sources in the finance ministry said the issue had been misinterpreted. They said the earlier government had constituted the committee, which had now put up a revised report. This government had not done anything out of pique against the RBI governor, they pointed out.