Parekh says too early to comment on new MPC draft

HDFC chairman Deepak Parekh has said a proposal under which government will have majority presence on the monetary policy committee (MPC) and doing away with the Governor's veto powers on rates is only a suggestion and so far doesn't amount to trimming the central bank's autonomy.
"I do not think the RBI's autonomy is reduced or is curtailed," he told shareholders at the company's Annual General Meeting (AGM) here last evening.
"There was an FSLRC (Financial Stability and Legislative Reforms Commission) report which suggested something to the government but the Finance Minister (Arun Jaitley) has come out openly saying this is a suggestion of the committee, and that the government has not taken any decision on that.

"So, it is just a suggestion of the committee, the government will review it," Parekh said.
The government had last week released the second draft of the Indian Financial Code (IFC) which proposed taking away Reserve Bank chief's authority to veto the interest rate decision of the central bank's monetary policy committee.
The Finance Ministry has invited comments on the second draft till August 8.

The revised draft of Indian Financial Code (IFC) also proposed that the committee would have four representatives of the government and only three from the central bank, including the 'RBI Chairperson'.
The draft talks of 'RBI Chairperson' and not 'RBI Governor'. The apex bank is headed by a Governor, at present.

The suggestions have triggered a debate with concerns being voiced on the autonomy of the RBI being diluted if the proposals were to be accepted.
The revised draft of IFC, released by the Finance Ministry last week, is based on the recommendations of the Financial Sector Legislative Reforms Commission (FSLRC), headed by Justice B N Srikrishna.
The IFC, which is conceived as an overarching legislation for the financial sector, proposes a monetary policy committee which will be entrusted with the task of deciding the key policy rate and chasing the annual retail inflation target to be decided by the government in consultation with RBI.

Further, it said the RBI "must constitute a Monetary Policy Committee to determine by majority vote on the Policy Rate required to achieve the inflation target".
At present, RBI Governor consults a Technical Advisory Committee, but does not necessarily go by the majority opinion while deciding on the monetary policy stance.