Revised draft of Indian Financial Code : A tool to curb powers of the Reserve Bank of India chief

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Revised draft of Indian Financial Code is being criticised by economics experts across the country and being conceived as an overarching legislation for the financial  sector. The revised draft states changes made to the composition of the Monetary Policy Committee (MPC) as given by the Financial Sector Legislative Reforms Commission (FSLRC)

The draft has proposed that the all-powerful monetary policy committee would have four representatives of the government and only three from the central bank, including the ‘RBI Chairperson’. It removes the central bank governor’s veto power over the advisory committee on monetary policy changes. This simply means that the governor will have to go with the majority view.

At present, the RBI Governor consults a Technical Advisory Committee, but does not necessarily go by the majority opinion while deciding on the monetary policy stance but as per  revised draft the task of deciding the key policy rate and chasing the annual retail inflation target to be decided by the government in consultation with RBI and RBI chief will have to follow the majority

On April 1, 2015, when he went against the consensus and maintained status-quo in the interest rates. Out of the seven members, four had recommended a repo rate cut and three argued against a rate cut. Rajan, however, did not go with the majority and exercised his power as the chairperson of the board to make his own decision of keeping rates unchanged but if this revised draft is passed RBI chief will loose his veto power and will have to go with majority

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