1. Government toes RBI line on monetary policy committee

Government toes RBI line on monetary policy committee

Ending the suspense over the proposed monetary policy committee (MPC) that will set policy interest rates, the Cabinet will likely soon approve a six-member MPC with three members from the Reserve Bank of India including the governor, who would have a casting vote.

By: | New Delhi | Updated: October 24, 2015 3:38 PM
rbi monetary policy committee

Ending the suspense over the proposed monetary policy committee (MPC) that will set policy interest rates, the Cabinet will likely soon approve a six-member MPC with three members from the Reserve Bank of India including the governor, who would have a casting vote. (Reuters)

Ending the suspense over the proposed monetary policy committee (MPC) that will set policy interest rates, the Cabinet will likely soon approve a six-member MPC with three members from the Reserve Bank of India including the governor, who would have a casting vote.

The other three external members in the committee would be appointed by the government. Besides the six members, a finance ministry nominee would also take part in the deliberations of the committee to convey the government’s views on policy, but he won’t have a voting right. A proposal in this regard has already been circulated for the Cabinet’s approval. A Bill on the MPC may be introduced in the winter session of Parliament in November-December.

The move, along with a decision by the finance ministry to appoint economic affairs secretary Shaktikanta Das on the boards of the RBI and the Securities and Exchange Board of India, is expected to strengthen the government’s ties with financial sector regulators, especially with the central bank. In a surprise move in June, additional economic affairs secretary Rajiv Tyagi was nominated as the department of economic affairs’ representative on the RBI board, replacing then finance secretary Rajiv Mehrishi. In Sebi, the department is currently represented by the joint secretary (capital markets). Official notifications would be issued shortly for these changes.

monetary-policy

The move on the MPC is of significance as it would put to rest a recent controversy after a modified draft floated by the finance ministry had given supremacy in the MPC to the government by suggesting that four of a seven-member committee could be appointed by it. Along with a clarification that it was a mere consultation paper, the ministry had later said that it had reached an understanding on the issue with the central bank.

Setting up of the MPC would fulfill a Budget promise. The government and the RBI signed a Monetary Policy Framework Agreement earlier this year formally mandating the central bank to adopt flexible inflation targeting. Under the present system, the RBI governor is practically the sole decision-maker as far as interest rates are concerned, although advice from the government is heeded. On August 4, governor Raghuram Rajan said he was not in favour of the governor getting veto power in the MPC, adding that there was no disagreement with the government on the issue.

In the draft Indian Financial Code (IFC) submitted to the finance ministry in March 2013, the Financial Sector Legislative Reforms Commission had proposed the RBI governor could override the MPC under exceptional circumstances, even as the MPC would have two RBI members, two nominated by the government in consultation with RBI and three directly appointed by the government.

Tags: RBI
  1. H
    Hemen Parekh
    Nov 16, 2015 at 5:31 pm
    NETWORK OF CURRENCY NOTES ? ( A Mobile App called " BLACK-MAIL " ) While inaugurating the International Conference on " Networking the Networks " on Nov 2 , our FM Shri Jaitleyji said : " Tax evasion and money laundering will become extremely difficult in the next 1-2 years, with the global automatic exchange of information system coming into effect on a real time basis " To speed up this process and make it truly automatic / real time , I suggest resorting to the following technologies : # Internet of Things ( IoT ) As each currency note of Rs 500 / 1000 , is getting printed , embed it with microscopic RFID chips Besides communicating with each other , these chips will also transmit their existence location , through internet , to cloud-based servers of Income Tax Department This will form a " NETWORK OF CURRENCY NOTES ( NoC ) " You may like to call this Internet of Currency ( IoC ) , a sub-set of IoT ! # Internet Protocol Address System ( IP V 6.0 ) Each Rs 500 / 1000 currency note must be igned ( at the time of printing ) , its own unique Internet Address , using IP V 6.0 This IP address should be linked with the unique Serial Number printed on each note. Since IP V 6.0 , will be capable of igning " 2 * 10 to the power of 128 ", no of IP addresses , there is no danger of running out of addresses , even if we decide to extend this idea to Rs 100 currency notes ! Here are the most important BYE - PRODUCTs : * No more possibility of fake / forged / counterfeit , currency notes ! * Plastic currency notes will last 10 times longer ! This reform will enable the Central Government / Income Tax Department , to : * Continuously trace the movement of each of these higher denomination currency notes * Instantly locate any place ( using Google Map based GPS ) , where there is an aculation of more than Rs 1 Crore worth of currency notes Such aculation will be made to appear as a TAG CLOUD on the web site of IT Dept, like thousands of balloons floating on a map of India , capable of being drilled down to within 1 Sq Meter ! On each balloon , will appear a number announcing , " Amount of Cash here - Rs " ! This will vastly simplify the task of Anti Corruption Dept / Enforcement Dept etc Of course , RBI will need to allow 6 month's time to the owners of current paper currency notes of Rs 500 / 1000 , to get these exchanged with new plastic notes before withdrawal of the old notes from circulation Now , would not that distribute the hidden , unaccounted wealth ! - a welcome fall out ! But then such transparency might lead to break-down of social order / chaos It may be a better / safer / saner solution for such balloons / tag clouds to appear , on a secret Mobile App , available only to the officers of Enforcement Department ( ED ) You may want to call this app , " BLACK-MAIL " ! Of course , my suggestions may become outdated with the arrival of mobile wallets based CASHLESS SOCIETY , by 2030 In the meantime , should Shri Arun Jaitleyji and Shri Ravi Shankar Prasadji , want this implemented , it can be done in 6 months , at one tenth the cost of MoM ( Mars Orbital Mission ) , ie approx Rs 43 Crores All they have to do , is to tell the bureaucracy : " Since we need not depend upon Opposition parties to p a bill in Rajya Sabha , please go ahead and implement this - in less than 6 months " -------------------------------------------------------------------------------------------------- hemen parekh 06 Nov 2015 B2BmessageBlaster
    Reply
  2. P
    Peter Knight
    Oct 24, 2015 at 1:01 am
    Two nominated by the government in consultation with RBI and three directly appointed by the government It's going to be interesting to say the least
    Reply

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