The mystery over what the finance ministry’s final view is going to be on the draft Indian Financial Code (IFC) has only deepened after the finance secretary’s press conference meant to clear the air. As Mint brought out in its lead story on Monday, after the FSLRC had submitted its report on the proposed Monetary Policy Committee (MPC) in March 2013, the government appointed a 3-member group which was headed by Justice Srikrishna – who also headed the FSLRC – to come out with another draft to reflect the comments received by it on the FSLRC report. There was, however, a huge difference between what the FSLRC had recommended and what the IFC draft said though both were headed by the same person. While the FSLRC report gave the RBI Governor a veto in the MPC which would have 2 RBI members, 2 nominated by government in consultation with RBI and 3 purely by government – so the RBI Governor had the balance of power in the FSLRC – the IFC gave the majority power to the government. The mystery deepened since Justice Srikrishna categorically told Mint ‘the revised draft of the IFC is FSLRC’s recommendation as modified by the government of India … it is neither my view nor is it FSLRC’s view … it reflects the government’s view’. It appears the reason why Srikrishna has disassociated himself and FSLRC from the IFC report is that the latter was drafted as per the finance ministry’s suggestions. When asked a specific question on this, the finance secretary chose to give a reply that never really addressed the issue.
While it would appear the finance ministry may not try and whittle RBI’s powers in the MPC given the furore over the draft IFC report, at some point, the ministry will have to take a hard look at how its communication is being handled. The fiasco over levying MAT on FPIs is well-known and it was only after spooked FIIs began withdrawing funds that the ministry decided to appoint the AP Shah panel to examine the issue. And while the confusion over the FSLRC persists, there is the additional controversy generated by the decision to nominate an additional secretary in place of the finance secretary on the RBI’s board. While the finance ministry claims the idea was to avoid a vacuum on the RBI’s board since the finance secretary will be retiring soon, surely this could have been more clearly worded to say that the new finance secretary would be on the RBI’s board as soon as he/she was appointed.