(Reuters) - India's government and central bank are set to consider proposals for the formation of a monetary policy committee that would take key decisions like interest rate changes, but have raised concerns over the central bank's independence.
There are two competing proposals to establish a monetary policy committee, one from an external panel appointed by the finance ministry and another from the Reserve Bank of India.
Monetary policy committees (MPCs) are a common feature in central banks globally. Below are the main points of the two proposals being considered in India as well as examples of MPCs in Britain and Brazil.
RBI PANEL'S KEY PROPOSALS
- Five-member committee
Chairman: RBI Governor
Vice Chairman: Deputy Governor in charge of monetary policy
Executive Director in charge of monetary policy
Two external members picked by RBI Governor and Deputy Governor
- Each member has one vote
- No veto power for Chairman
FINANCIAL SECTOR LEGISLATIVE REFORMS COMMISSION PROPOSALS
- Seven-member panel:
RBI Governor
1 executive member of RBI board
3 external members picked by the government
2 external members picked by the government in consultation with RBI Governor
- Government representative to attend meetings but would not vote
- RBI Governor would get power to override panel but would need to issue public statement detailing the reasons
- Each member has one vote
EXAMPLES OF MPCS WORLDWIDE
BANK OF ENGLAND
9-member panel:
Governor
3 deputy governors
Chief economist of the BOE
Four external members appointed by the Chancellor
- Each member has 1 vote
- Treasury representative attends, but has no vote
CENTRAL BANK OF BRAZIL
- 8-member panel:
Governor
7 deputy governors
- Governor holds deciding vote if committee is evenly split
- If target is missed, governor writes an open letter to finance minister citing reasons as well as remedial measures to reach inflation aim