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A serious debate has been started regarding this debate.
Will this amendment influence the independency of the RBI because of uncertainty regarding the government’s choice of the committee’s structure ?
- Many suggestions, including one by the Srikrishna Commission and the other by the Urjit Patel committee, which differ on the role of the government in having representation in the MPC.
Any signs of government influence in the RBI’s decisions would worry investors.
Srikrishna panel recommendations:
- The Srikrishna panel is for a seven member panel with the RBI governor as its head.
- It proposed five external members with two to be appointed by the Union government in consultation with the RBI governor, and the other three directly by the Union government.
- It has also favoured a government representative without voting powers.
Urjit patel Committee recommendations:
- The Patel committee suggests five members with the governor as chairman, deputy governor in charge of monetary policy as vice-chair, and the executive director from the monetary policy department, besides two independent members to be nominated by the governor and his deputy.
Setting up of Monetary Policy Committee is in line with international best practices and it is likely to provide greater transparency on the decision process.
International practices:
| US | The US Federal Reserve does not target inflation, and the Fed’s Board of Governors is responsible for the discount rate and reserve requirements. The Federal Open Market Committee (FOMC) is responsible for announcing the Fed funds’ target rate. The FOMC comprises seven Fed governors; the president of the Federal Reserve Bank of New York, and four of the 11 remaining reserve bank presidents who serve one-year term on rotational basis. |
| In Japan, | Monetary policy is decided by the policy board at monetary policy meetings. |
| In China | Monetary Policy Committee is a consultative body and has an advisory role. The macro targets are set by the state council, which is also entrusted with the monetary policy decision. The number of members of the MPC range from five to 10. |
| UK and Indonesia | Members are appointed by the government. |
| Israel or South Africa | Members are appointed by the governor. |
| UK | Monetary policy committee, the treasury has a representative without voting rights. The chancellor of the exchequer, equivalent to finance minister in India, appoints four external members based on their expertise in economics and monetary policy. Decisions are taken by vote and not by consensus. |
Sources: The Hindu, ET,PIB.