One year of MPC: Monetary panel has task cut out, says Michael Patra

The revival of private investment holds the key for growth, says Michael Patra

One year after a panel of experts started to decide the monetary policy, a Reserve Bank of India nominee on the Monetary Policy Committee (MPC) has said the panel will seek to achieve the primary objective of inflation and also try to support the sagging growth going forward.

Attempts of the MPC, through its resolutions and individual members' views, is to make policymaking more transparent and predictable, RBI Executive Director Michael Patra, who is a part of the panel, has said.

Looking ahead, the task of the MPC is clearly cut out and quoting Governor Urjit Patel, Patra said, “we should aim at achieving the inflation target without losing sight of supporting economic growth.”

The six-member MPC has three members from the RBI (the Governor and deputy governor in-charge of monetary policy being the other two and Patra, the ED in charge of the monetary policy) and three external experts appointed by government, and is tasked to get inflation within a target in a 2-6 per cent band. Patra said shifting rate-setting to the six-member MPC was historic, and added the final calls get taken in a “room filled with debate and argumentation, challenge and counter- challenge, articulations of well-defended individualistic assessments, and voting”.

In the speech delivered in Jaipur on October 27, which was uploaded on the RBI website only on Monday, Patra elaborated on how the country made the shift to join a growing list of inflation targeting countries and the MPC process.

He said in the first four meetings, the panel voted unanimously on rate calls, but the growth-inflation dilemma started playing out from the June 2017 meeting onwards where there was divergence in voting patterns.

Patra termed the October 4 policy meeting as one held in a “dramatic setting”, with growth sliding to a three year low of 5.7 per cent for the June quarter and inflation also inching up.

He seemed to attribute the sharp fall in growth to demonetisation and also GST introduction, but reiterated MPC's assessment that structural reform measures will support growth over a medium term.

The revival of private investment holds the key for growth, he said, adding, “creation of a conducive environment for investment is critical, involving adequate recapitalisation of stressed banks, closing the infrastructure gap, simplifying GST, hastening clearances and rationalising procedures by states relating to investment proposals.” In the wake of the note-ban which altered monetary conditions drastically, Patra said the RBI has done a lot of work on the liquidity management front which will be recognised in the future.