Is Modi Government proposing to clip Reserve Bank’s wings?

NEW DELHI – A Government committee entrusted with drafting the new inflation-targeting monetary policy framework for India has proposed only a minor representation for the Reserve Bank of India  (three of a total seven members, four 4 external) in a new Monetary Policy Committee (MPC), raising concerns of a possible dilution of central bank control and effective policy-making.

ANZ Bank says a global comparison shows that the majority of the MPCs in inflation-targeting countries (eight out of 12) have ‘external’ members outnumbering ‘internal’ (central bank) ones – these include Australia, Thailand and Korea in the region.
However, ANZ says that given the ‘new and improved’ and much-needed macro credibility India has gained during RBI Governor Raghuram Rajan’s term, it believes it would be best to have the RBI continue to lead policy decisions.
“This is especially so at the present time, when the global risk sentiment towards emerging markets like India may turn volatile amid possible Fed hikes, and as India transitions into the inflation targetting world,” ANZ says.
“If the proposed ratio of external versus RBI members is implemented, a ‘dovish’ bias may creep into decision-making.”
The Government committee’s proposals will not come into effect before the end of 2015, at the earliest. www.live.anz.com (ATI).