Four members appointed by the Central government on the Monetary Policy Committee, instead of three as mentioned in 2013 'Draft Law'.
The Finance Minsitry has put out a revised draft of the Indian Financial Code (IFC) on its website. The draft, primarily looks to improve the accountability of financial agencies, remove the provision empowering Financial Sector Appellate Tribunal (FSAT) in case of reviewing regulations, rulemaking and operational aspects capital controls; the framework of monetary policies, and the Monetary Policy Committee, and so on, as listed by the Finance Ministry.
The revised draft states changes made to the composition of the Monetary Policy Committee (MPC) as given by the Financial Sector Legislative Reforms Commission (FSLRC), which will work toward curtailing the power of the the Reserve Bank of India (RBI) chief, currently held by Raghuram Rajan, to veto a decision taken by the MPC.
The draft has been under work since 2011, and was put on the Ministry's website on March 22, 2013 for the public to comment and make suggestions.
The Monetary Policy Committee has seven members -- four appointed by the government and three by the RBI.
Each member, while deliberating on monetary policy decisions will hold one vote each. The meeting of the MPC to deliberate on the monetary policy can be convened with minimum five members, in the presence of the RBI chief. the draft said.
Previously, the RBI chief had the power to veto the committee's decision, as practiced by Rajan on April 1, 2015, when he went against the consensus and maintained status-quo in the interest rates. Out of the seven members, four had recommended a repo rate cut and three argued against a rate cut. Rajan, however, did not go with the majority and exercised his power as the chairperson of the board to make his own decision of keeping rates unchanged.
This draft, if passed, will have RBI accept the decision of the majority, regardless of its view.
This will change if the new draft is adopted as RBI chairperson only gets a second and deciding vote if the MPC is unable to arrive at a decision.
The draft seems to highlight the attempts of the government to dilute the autonomy of the Reserve Bank of India (RBI).
Here are the major differences between the two drafts:
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Revised |
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The Monetary Policy Committee will consist of (a) the Reserve Bank Chairperson, as chairperson of the Monetary Policy Committee; (b) one executive member of the Board of the Reserve Bank, as designated by
the Reserve Bank Board; (c) two members, appointed by the Central Government, in consultation with the Reserve Bank Chairperson; and (d) three members appointed by the Central Government.
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The Monetary Policy Committee will comprise (a) the Reserve Bank Chairperson as its chairperson; (b) one executive member of the Reserve Bank Board nominated by the Reserve Bank Board; (c) one employee of the Reserve Bank nominated by the Reserve Bank Chairperson; and (d) four persons appointed by the Central Government
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The decisions of the Monetary Policy Committee will be binding on the Reserve Bank, unless such decision has been superseded by the Reserve Bank Chairperson.
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The decisions of the Monetary Policy Committee will be binding on the Reserve
Bank. |
| In exceptional and unusual circumstances, if the Reserve Bank Chairperson disagrees with a decision taken at a meeting of the Monetary Policy Committee, the Reserve Bank Chairperson will have the right to supersede such decision. |
In the event of a tie amongst the members of the Monetary Policy Committee,
the Reserve Bank Chairperson will have a second and casting vote. |
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 "Reserve Bank of India (RBI)")
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