Subba Rao seeks veto power for RBI chief but compromise likely on casting vote

RBI governor’s role in the new monetary policy panel to decide on interest rate

GN Bureau | August 8, 2015


#rbi   #raghuram rajan   #subba rao   #interest rate  

The governor of Reserve Bank of India Raghuram Rajan has received tactical support of his predecessor even as centre and the RBI are close to an agreement on the broad contours of the Monetary Policy Committee (MPC).

Dr Duvvuri Subbarao, the previous governor of the RBI, has backed the demand for the central bank chief being given a veto power over interest rate decisions that are proposed to be handed over to the MPC. The proposal to not provide veto power to the governor could impact the success of achieving RBI's mandate of keeping inflation under control, he said.

Subbarao further said the government could experiment with giving veto powers to the RBI chief for a limited time period, say five years, and later decide on whether to stick with it later. "The governor's decision should prevail at least in the initial period [following the formation of the MPC]. We must try it out for at least five years with the governor having a veto and then, if we find that the system has stabilised, perhaps we can drag it towards the best practice," he said.

Meanwhile, the proposal now being considered is to have three members from the central bank and three external members with a casting vote for the governor in case there is a tie.

It has been argued that providing a veto power defeats the purpose of such a committee which is supposed to decide on interest rates and a casting vote would be a preferred option as is the case also in many monetary policy committees in other central banks.

The Centre will also consult the RBI while selecting the external members on the committee. This will be a change from the suggestion in the revised draft of the Indian Financial Code or IFC which was released a fortnight ago.

The IFC envisages a seven member MPC with more external members and without any veto power to the RBI chief — which led to widespread criticism, forcing the finance ministry to say that there was no attempt to curtail the powers of the RBI.

The finance ministry has pointed out 18 out of 25 nations which have an inflation targeting regime, decide monetary policy based on a majority vote rather than arriving at a consensus decision, where the governor as chairperson may have a casting vote.

A new MPC will call for changes to the law- the RBI Act as there is no provision in the law now. The finance ministry and the RBI have already signed a monetary policy framework agreement on inflation targets over the medium term.

Comments

 

Other News

On a personal note: DIVINE

An underground rapper who grew up on Mumbai streets, Divine spins his music around his environment and poverty. His breakout single, ‘Meri Gully Mein’, along with fellow rapper Naezy caught Bollywood’s attention. The Hindi film ‘Gully Boy’ is inspired by their lives and gr

The role model for an IAS officer

Anil Swarup, an IAS officer of Uttar Pradesh cadre who retired in 2018, is a model bureaucrat who retained his optimism right till the end of service and exemplified dedication and commitment. His excitement at the opportunities that a job in the IAS provided is evident on every page of his new book publis

Reform of the civil services: At home and away

The question of reform of the civil services has been debated extensively at all levels at least over the last five to six decades after independence. Indeed, it was soon perceived that the Indian Administrative Service (IAS) may not be well equipped to deal with the problems of an emerging developing coun

The greatest challenge for any government

Shouting vengeance at all and sundry while wriggling out of holes of our own making seems to be our very special national characteristic. Some recent instances are illustrative of this attribute. A number of business tycoons with thousands of crores of unresolved debts have fled abroad with the government

The mysterious case of CBI’s legality

The Central Bureau of Investigation (CBI) came into existence, based on a Resolution of the home ministry, dated April 1, 1963 – a sheer coincidence that it also happens to be April Fool’s day. Over the past few months, we have seen the CBI live up to its founding day with great zeal, being i

The Evolution of Modi

Gujarat was passing through a turbulent phase in the 1980s. The decade began middle class agitations against new reservation policies, and the caste friction turned communal under the watch of chief minister Madhavsinh Solanki, alienating majority of urban population on both counts. The ground was ripe for

Current Issue

Current Issue

Video

CM Nitish’s convoy attacked in Buxar

Opinion

Facebook    Twitter    Google Plus    Linkedin    Subscribe Newsletter

Twitter