Going on the backfoot over a draft Bill proposing curtailing powers of RBI Governor on interest rate, the Indian government on Monday said it is not right to conclude that it wants to curtail the central bank’s powers.
At a hurriedly called press briefing, Finance Secretary Rajiv Mehrishi was at pains to explain whose draft proposal was it to withdraw RBI Governor’s veto in the proposed monetary policy committee as he contradicted Chief Economic Advisor (CEA) to say it was not a proposal of FSLRC but went on to add that it was not even a government move.
“People of India own this draft report,” he said, while seeking to put at rest the controversy generated by revised draft of the Indian Financial Code (IFC) that proposes to take away the veto power of RBI Governor in deciding the benchmark interest rate.
Observing that the government has not made up its mind on draft IFC, he said the government is seeking comments on it which indicates that it is still under discussion.
“This is still to be considered by the government as a discussion paper. So from that, to jump to a conclusion that some curtailment of the power of the RBI has been made or the government has decided to do so would be incorrect,” he added.
He further said that the government’s views on the IFC will be revealed when the draft bill is brought before Parliament for consideration and approval.
“Government’s final mind will be revealed on the draft Bill which comes out before Parliament. This clarifies that there is no decision in government as of now,” Mehrishi said.
Chief Economic Advisor Arvind Subramanian had earlier said that the revised IFC draft was based on FSLRC report, a position which was contradicted by FSLRC member M Govinda Rao.
Terming the new draft bill as IFC 1.1, Mehrishi said the revised bill which has been put up on the website of Finance Ministry does not say it is a Financial Sector Legislative Reforms Commission (FSLRC) recommendation.
“Everything is in public domain including constitution of the committee headed by Justice Srikrishna. So, it is not pertinent to ask whose recommendation it is because that is also in public domain.
“If you look at the website, that clearly says that certain changes have been made. It does not say that it is by the FSLRC… The people of India own this draft that is why it is in public domain,” Mehrishi said.
The revised draft of the Indian Financial Code (IFC), which proposes that any decision on monetary decision should be taken by majority by a seven-member committee without any veto power to the RBI chief, has created a furore and was seen as an attempt to curtail the central bank’s autonomy.
While the first version of IFC, as recommended by the FSLRC over two years ago in March 2013, had also suggested a Monetary Policy Committee (MPC) to decide on policy rates, it had recommended a veto power for the central bank chief.
The revised draft, released by the Finance Ministry last month on July 23 for public comments till August 8, suggested doing away with this veto power and wants the seven-member MPC to take decisions by a majority vote.
He said a final view on a monetary policy committee would be taken based on the feedback as well as international best practices and thus in consultation with all stakeholders.
“The RBI Governor does not fix monetary policy in most countries,” Mehrishi said, adding that a majority of 18 out of 26 inflation targeting countries globally decide monetary policy by majority vote rather than arriving at a consensus decision, where the governor as chairperson may have a casting vote.