No rate panel veto for Guv 'will strengthen RBI': Govt srcs

The government "does not understand the fuss" over its recent proposal to constitute a seven-member monetary policy committee (MPC) and it will not take a hasty decision on whether to take away the Reserve Bank of India's veto power on the panel's interest rate decisions, sources have told CNBC-TV18.This comes in the wake of controversy arising out of the government releasing the draft Indian Financial Code recently that suggested that four of seven members in the proposed MPC will be appointed by the government and the Reserve Bank of India governor will not have power to overrule its decisions.The new IFC will come into effect three years from now. Based upon recommendations of the Financial Sector Legislative Reforms Commission (FSLRC) that was set up in 2011, the draft code's recommendations came under criticism from some economists who said it undermined the independence of the RBI. They also questioned that should the MPC be formulated in the way suggested in the IFC, how could the central bank be then held accountable for its job of managing price stability if it did not have control over monetary policy decisions.But sources in the Finance Ministry say the government believes that any dilution of the governor's veto power is not a "political one-upmanship" and could actually strengthen the RBI, and that there was a need to take a "long-term view" on the recommendations of the FSLRC. They also questioned the current structure in which the RBI has a seven-member technical advisory committee comprising of external members but whose views the governor can overrule.For instance, since taking office in 2013, incumbent RBI governor has overruled the committee's view on interest rate decisions at least four times, minutes of RBI meetings show.The government, however, is not averse to reducing the number of government nominees on the proposed MPC, sources said.In the US, monetary policy decisions are taken by its 12-member FOMC but that body is dominated by representatives from the central bank itself.Finally, in what will be seen as adding further fodder to whirlwind of rumours suggesting friction between the RBI and the government, sources said the Finance Ministry has "taken a dim view" of comments by governor Rajan on Monday.At an event, Rajan had said that the lack of capable economists in "Delhi, Mumbai (implying government and RBI) and all over the country" was hurting policymaking.