Consensus between govt, RBI on monetary policy: FinMin

The government and the Reserve Bank have reached a consensus on the structure for the proposed Monetary Policy Committee and Public Debt Management Agency, said Finance Secretary Rajiv Mehrishi. "Monetary Policy Committee (MPC) and Public Debt Management Agency (PDMA) are two sides of same coins. There is consensus (with the RBI). I am hoping it (amendments) can come to Parliament in Winter session in December," he told agency. The setting up of both MPC and PDMA would require amendments to the RBI Act. "This (MPC) will have to be in alignment with PDMA. This will happen in a couple of days," Mehrishi added. He, however, refused to share details of the composition as well as voting rights of the RBI governor on the MPC, which is to replace the current practice of RBI Governor deciding on interest rate on advice of technical advisory committee. Mehrishi said the details would be shares when the Bill is introduced in Parliament.

The government has been trying to set up MPC, an interest rate setting panel which will comprise representatives from the Finance Ministry and the RBI, to decide on interest rate. The revised draft of the Indian Financial Code (IFC), released by the Finance Ministry last month, had suggested doing away with RBI Governor's veto power and wants a 7-member MPC to take decisions by a majority vote. Of the seven members, four would be government nominees and the rest from the RBI.

Reports suggest the consensus arrived at between the Government and RBI is for a six-member committee with equal representation from each side and the Governor having casting vote. Mehrishi refused to confirm or deny the reports saying "I can't say anything at this stage. Parliament has to first know of it".

Under the present system, the Reserve Bank Governor is appointed by the government, but controls monetary policy and has veto power over the existing advisory committee of RBI members and outside appointees that sets rates. As regards the PDMA, the Finance Ministry in Budget had proposed to set up an agency to manage government debt and also to shift the regulation of government bond from the RBI to Sebi. However, due to opposition from the RBI, the proposal could not go through.