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The final contours of the composition, responsibility, and powers of the proposed Monetary Policy Committee (MPC) is likely still four-six months away from being finalized, and may lead to the necessary amendments in the RBI Act to be introduced in Parliament much later than originally anticipated, Business Standard has learnt.
Finance Minister Arun Jaitley had promised to bring soon the amendments in the Act, which would enable the formation of MPC, and Minister of State for Finance Jayant Sinha had said in a post-budget interview in early March that the government would bring the amendments in two months’ time.
However, with the composition of the panel, and veto power for the chairman being the main sticking points, the MPC may still take longer to be formed, government sources say.
“There are task forces looking into various aspects of the proposed MPC. Finalizing the composition and responsibilities of the MPC will be a long drawn-process and may take four-six months,” a government official said. The person added that the proposed amendments to the RBI may not be tabled in the Lok Sabha or Rajya Sabha even in the monsoon session of Parliament.
There are still differences to be ironed out between the Reserve Bank of India (RBI) and the government. Sources say that Finance Ministry wants to adopt the key recommendations of the Financial Services Legislative Reforms Commission.
Finance Minister Arun Jaitley had promised to bring soon the amendments in the Act, which would enable the formation of MPC, and Minister of State for Finance Jayant Sinha had said in a post-budget interview in early March that the government would bring the amendments in two months’ time.
However, with the composition of the panel, and veto power for the chairman being the main sticking points, the MPC may still take longer to be formed, government sources say.
“There are task forces looking into various aspects of the proposed MPC. Finalizing the composition and responsibilities of the MPC will be a long drawn-process and may take four-six months,” a government official said. The person added that the proposed amendments to the RBI may not be tabled in the Lok Sabha or Rajya Sabha even in the monsoon session of Parliament.
There are still differences to be ironed out between the Reserve Bank of India (RBI) and the government. Sources say that Finance Ministry wants to adopt the key recommendations of the Financial Services Legislative Reforms Commission.
T he FSLRC has recommended seven members for the MPC including the chairman (RBI Governor), one executive member from the RBI Board (likely to be a deputy governor of the RBI), and five members who will be independent experts in the field of monetary economics and finance.
Three of the external members will be government nominees, while the remaining two will be picked by the government in consultation with RBI Governor.
The RBI, on the other hand, wants the MPC on the lines of suggestions made by the Expert Committee to Revise and Strengthen the Monetary Policy Framework, which was led by RBI deputy governor Urijit Patel.
The panel has recommended a five person MPC, with the RBI governor as chairman, the deputy governor in charge of monetary policy as vice chairman, and the executive director in charge of monetary policy as a member, in addition to two external experts to be decided by the chairman and the vice chairman.
In addition, the FSLRC has recommended conditional veto power for the governor, in that he or she would have the power to override the MPC in exceptional circumstances, but would be required to release a rationale statement in public, explaining the reasons for disagreeing with the MPC. The Urijit Patel panel, however, makes no mention of a veto power.
Sources say that the senior policymakers in the Finance Ministry are likely not keen on the veto power for the governor. There are also differences over the Urijit Patel panel suggestions not having provision for government appointed nominees.
“The RBI’s argument is that since the governor and the deputy governor are themselves government appointees, there is no need for separate independent nominees handpicked by North Block. Hence, they say that the Urijit Patel panel suggestions should be accepted,” said a second government official.
Three of the external members will be government nominees, while the remaining two will be picked by the government in consultation with RBI Governor.
The RBI, on the other hand, wants the MPC on the lines of suggestions made by the Expert Committee to Revise and Strengthen the Monetary Policy Framework, which was led by RBI deputy governor Urijit Patel.
The panel has recommended a five person MPC, with the RBI governor as chairman, the deputy governor in charge of monetary policy as vice chairman, and the executive director in charge of monetary policy as a member, in addition to two external experts to be decided by the chairman and the vice chairman.
In addition, the FSLRC has recommended conditional veto power for the governor, in that he or she would have the power to override the MPC in exceptional circumstances, but would be required to release a rationale statement in public, explaining the reasons for disagreeing with the MPC. The Urijit Patel panel, however, makes no mention of a veto power.
Sources say that the senior policymakers in the Finance Ministry are likely not keen on the veto power for the governor. There are also differences over the Urijit Patel panel suggestions not having provision for government appointed nominees.
“The RBI’s argument is that since the governor and the deputy governor are themselves government appointees, there is no need for separate independent nominees handpicked by North Block. Hence, they say that the Urijit Patel panel suggestions should be accepted,” said a second government official.
