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

Citizens of the Bay: Why BIMSTEC matters now

The international order is drifting into a dangerous grey zone as the very powers that built today`s multilateral system begin to chip away at it. The United States has increasingly walked away from global rules and forums when they no longer suit its interests, while China has rushed to fill the vacuum on

PM salutes armed forces on one year of Operation Sindoor

Prime minister Narendra Modi on Thursday saluted the courage, precision and resolve of the armed forces on the completion of one year of Operation Sindoor.   The PM said that the armed forces had given a fitting response to those who dared to attack innocent Indians at Pahalgam.&

Supreme Court judge strength to go up by four to 37

The strength of the Supreme Court is set to go up from 33 judges to 37 judges, paving the way for a more efficient and speedier justice. The Union Cabinet on Tuesday approved the proposal for introducing The Supreme Court (Number of Judges) Amendment Bill, 2026 in Parliament to amend The Sup

BJP set to capture West Bengal

The political map of the country is set to be redrawn with the BJP set to win the West Bengal assembly elections, apart from Assam and the union territory of Puducherry. In Kerala, meanwhile, the Congress-led UDF is set to regain power. The filmstar Vijay-led TVK has emerged as the front-runner in Tamil Na

Beyond LPG: Is PNG ready for India’s next cooking fuel transition?

India, the second-largest importer and consumer of LPG after China, faces growing pressure due to supply constraints. Most of India`s LPG imports transit through the Strait of Hormuz, a focal point of global turmoil. Given that LPG forms the backbone of household kitchens and the restaurant industry, any s

Maharashtra adopts hybrid model for Census 2026 data collection

The government has initiated preparations for Census 2026 in Maharashtra, introducing a hybrid approach that combines optional self-enumeration with comprehensive door-to-door data collection to ensure complete coverage across the state.   According to senior officials, the Self-


Archives

Current Issue

Opinion

Facebook Twitter Google Plus Linkedin Subscribe Newsletter

Twitter