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

The 7% growth problem: Why the next 7% will be harder

India has become accustomed to hearing the 7% growth number. It is now less a milestone than an expectation. Yet the paradox is becoming clearer: maintaining 7% growth may be considerably harder than achieving it once. India’s real GDP grew 7.7% in FY2025–26, following growth of 6.5% in FY202

The Constitution cannot be altered: Justice Abhay Oka

Justice Abhay Oka, who retired from the Supreme Court in May 2025, has said that the Constitution of India cannot be altered. Explaining the landmark Kesavananda Bharati judgment (1973) on the basic structure of the Constitution, he said, “This is one judgment that has saved democracy in India.&rdq

How the flora and fauna evolved in the Indian subcontinent

Mammals of India  By A.J.T. Johnsingh and P.O. Nameer HarperCollins India in association with Bombay Natural History Society  

India`s renewable race is moving beyond megawatts

When Shell bought Sprng Energy in 2022, India`s renewable energy market appeared to offer precisely what global energy majors were seeking: scale, growth and a place in one of the world`s largest energy transitions. Four years later, Shell is selling the same business to Aditya Birla Group for an enterpris

Nepal Floods: India keeps close watch on the situation

India`s central government has been keeping a close watch on the situation arising out of the flash flood in Nepal on Wednesday. Union home minister Amit Shah spoke with the chief ministers of Bihar and Uttar Pradesh, the two states that share the border with Nepal, regarding the disaster

UPI completes 10 years of digital payments revolution

The Unified Payments Interface (UPI), launched on August 25, 2016 by the National Payments Corporation of India (NPCI) under the regulatory oversight of the Reserve Bank of India (RBI), has completed 10 years of transforming digital payments in India. UPI has emerged as the backbone of India’s digi

Upcoming Conferences



-->

Archives

Current Issue

Opinion

Facebook Twitter Google Plus Linkedin Subscribe Newsletter

Twitter