Press Trust of India
New Delhi, August 3: As the move to strip RBI Governor of veto power on deciding interest rates faced backlash, the government Monday said no decision on curtailing powers of the central bank has yet been taken. With the FSLRC disowning a revised draft that sought to remove RBI Governor’s veto power and give government the control over a proposed interest-rate setting panel, Finance Secretary Rajiv Mehrishi hurriedly called a press briefing to say that the report was neither of the government nor of FSLRC, but “people of India own this draft report”.
In doing so, he also contradicted Chief Economic Advisor Arvind Subramanian who had said the revised draft of Indian Financial Code (IFC) was a Financial Sector Legislative Reforms Commission (FSLRC) report. The proposal in the revised draft was also attacked by some economists as well as Moody’s Analytics as a threat to independence of monetary policy.
The government has not made up its mind on draft IFC, Mehrishi said, adding that it is seeking comments on the report, which indicates that it is still under discussion. “This is still to be considered by the government as a discussion paper. So from that, to jump to a conclusion that some curtailment of the power of the RBI has been made or the government has decided to do so would be incorrect,” he added. Mehrishi, who retires this month, said the government has reached an agreement with RBI on composition of Monetary Policy Committee (MPC) and it will be disclosed in Parliament.
“We are in discussion with RBI Governor, with RBI, in the form and the manner of the MPC and in fact we now have a position which is actually agreed but which I am not going to discuss. It will ultimately be disclosed in the Parliament,” he said. Asked if the government has firmed up views on the revised draft suggesting a 4:3 ratio of members in MPC in favour of the government, he said that “government has not applied its mind on what the final thing would be”.
The first version of IFC, as recommended by the FSLRC over two years ago, in March 2013, had also suggested a MPC to decide on policy rates with a veto power to the central bank chief to overrule majority decision.
