The government has proposed to take away the authority of the chief of Reserve Bank of India in vetoing the interest rate decision of the central bank’s monetary policy committee.
As things stand presently, the RBI governor consults a Technical Advisory Committee but does not necessarily take the majority into consideration while deciding on monetary policy.
A new draft released by the Finance Ministry pertaining to the Indian Financial Code seeks to have four representatives of the government controlling the all-powerful monetary policy committee.
The draft includes a person called ‘RBI Chairperson’ and not ‘RBI Governor’. At present, the RBI is headed by a governor.
The IFC now proposes that the monetary policy committee will decide the key policy rate and chase the annual retail inflation target to be decided by the government, in consultation with the RBI.
“Inflation target for each financial year will be determined in terms of the Consumer Price Index (CPI) by the Central Government in consultation with the Reserve Bank every three years,” said the draft. The Finance Ministry has invited comments on the same till August 8.