Letters: Suiting its own agenda

With reference to the editorial, "Targeting inflation" (June 17), the government has gone ahead with enforcing the requisite amendments to the RBI Act, 1934. This is a prelude to the formulation of a new monetary policy framework, which will henceforth determine specific inflation targets by consulting the RBI in advance on the matter, and will be notified in the official gazette.

The newly constituted Monetary Policy Committee (MPC) will now comprise six members - as opposed to the five-member committee recommended by the government-appointed Urjit R Patel Committee earlier - to be chaired by the RBI governor, who will have the casting vote in case of a tied decision. The new regime also provides for the resolution adopted by the MPC to be put in the public domain.

The moot point is the composition of this new MPC. It will have three members from the RBI - the governor; a deputy governor to look after monetary policy; and one officer recommended by the central board of the banking regulator. The three external members - experts in banking, finance and related matters - will be nominated by the government, according to the recommendations of the search-cum-selection committee, which will be headed by the cabinet secretary. Thus, the government has streamlined, rather overhauled, its composition to suit its own needs.

Incidentally, the government recently assigned the task of selection of all RBI deputy governors to an expert panel headed by the cabinet secretary. Media reports stated that the government has initiated action to decide the fate of H R Khan, a deputy governor of the central bank who retires in July.

The government is also thinking of taking the same line to finalise the next RBI governor in August, according to the recommendations an expert panel, appointed by itself. It's a different matter that the government had recently ignored the recommendations of its own expert panel by granting further extension to the Securities and Exchange Board of India chairman.

It seems the government wants to take over the new MPC. This will enable the government to have more than a say in the formulation of future monetary policy for the country, which would be in line with its growth-centric economic priorities.

In such circumstances it can be said with some surety that the RBI's autonomy is at stake.

Vinayak G, Bengaluru

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