India’s government has picked three economists from the academic world for a new monetary policy committee to set interest rates, as the Reserve Bank of India gets ready for a landmark switch in the way it decides policy.
They will join RBI Governor Urjit Patel and two senior officials from the bank’s monetary policy department. Patel, who took over the helm at the RBI earlier this month, will have the casting vote in the event of a tie.
The non-RBI members named on Thursday are Chetan Ghate, a professor at Indian Statistical Institute; Pami Dua, a director at the Delhi School of Economics; and Ravindra Dholakia, a professor at the Indian Institute of
Management in Ahmedabad, in Prime Minister Narendra Modi’s home state of Gujarat.
All are low-profile and India-based, unlike Patel or his predecessor Raghuram Rajan, who had both worked at the International Monetary Fund at one point before joining the RBI.
A former IMF chief economist, Rajan was feted on the global policy circuit, but he rubbed up Modi’s nationalist supporters the wrong way with his blunt social commentary about India.
The new external MPC members will serve for a term of four years, “or until further orders, whichever is earlier,” according to a statement issued by the government’s personnel department.
Analysts said the external MPC members held balanced views on monetary policy, and their selection would reduce some concerns that the government would pack the panel with political appointees.
The statement did not specify whether the panel would set interest rates on Oct. 4, the next scheduled RBI policy review, and the first to be held under Patel.
Analysts, however, expected the coming policy review to be the MPC’s maiden meeting.
“Choosing the monetary policy committee members ahead of the October policy means that the rate decision will be taken collectively which will ensure transparency and independence in policymaking,” said Soumya Kanti Ghosh, chief economist at State Bank of India.
“The choice of candidates seems to be balanced and not tilted towards dovish or hawkish stance.”
The committee will be responsible for ensuring consumer inflation stays within a range of 2 to 6 percent, a target announced this year in a move to anchor inflation in a country with a history of volatile changes in consumer prices.
Previously, decisions had been taken solely by the RBI governor. The policy shift to targeting inflation and collective decision making was pushed through by Rajan and his then-deputy Patel in the biggest changes at the RBI since India opened up its economy in 1991.
But some details have yet to be revealed, including whether the panel would weigh in on other central bank decisions such as managing the exchange rate or liquidity in the financial system.
‘WILL SPEAK THEIR MINDS’
The three members appointed by the government are career academics.
Ghate is probably the most familiar to the RBI, as he sits on a five-member technical advisory committee that has provided non-binding advice on interest rates to the RBI governor ahead of each policy review.
He was also a member of the panel headed by Patel that in 2014 recommended policy changes, including targeting inflation and establishing a panel to decide rates.
Dholakia has worked with Modi when the prime minister was chief minister of the western state of Gujarat, having sat on committees covering finance matters.
“This brings in a variety of opinions into the system because these are people with great stature,” said Prof. Sebastian Morris, a colleague of Dholakia in Ahmedabad.
“It’s not a good idea to have people from within (the government) as part of this. These people are bound to speak up, speak their mind.”