The controversy over the Monetary Policy Committee has been an unseemly one, and one that inadvertently shows the Reserve Bank of India Governor, Raghuram Rajan, in poor light for little fault of his. The proposal is that the RBI’s Monetary Policy Committee (MPC) should have seven members, four of whom would be nominated by the government, and the RBI governor would have a casting vote, but not a veto. This, by the way, was not a recommendation made by the Financial Sector Legislative Reforms Commission (FSLRC), as some have reported. Nevertheless, the idea of moving away from an all-powerful individual to the wisdom of a committee is worth debating, and should not just be dismissed because of how overawed one is of Raghuram Rajan.
My main observation on this ‘enlightened RBI governor’ versus ‘democratic expert panel’ is the complete dissonance between the political reality of our union government and the spirit of the reform it is trying to push in the RBI. If the council of ministers in government had not emasculated itself so completely to one individual, I would be less skeptical of such ‘progressive’ reform proposal.
Further, Finance Minister Arun Jaitely’s attempts to pass this off as an FSLRC recommendation also suggests that this proposal doesnt pass the smell test.