New financial commission: A faulty road map

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Amid all the talk about a New Financial Code (NFC) and the hullabaloo about the government’s apparent attempt to curtail the powers of the Reserve Bank of India (RBI), some deeper questions seem to have been missed: what is the exact aim of the proposed Indian Financial Code (IFC)? What is it trying to fix? Is a need for a fix at all?

Much of the discussion has revolved around the proposed creation of a Monetary Policy Committee (MPC), which is to be responsible for all matters relating to monetary policy. The argument in favour of an MPC is that: it is standard practice worldwide to have a committee in charge of monetary policy. So far, India has given that responsibility to the RBI and, in particular, to its Board of Directors.

And, though there is no specific provision for this in the RBI Act, the Board has, by and large, entrusted the RBI Governor with that responsibility. So, to the media and to the lay public, the fact that the RBI has cut or raised interest rates is synonymous with the Governor himself doing it. Read more at The Hindu

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