IFC draft not govt's final view, says Sinha

Amid controversy that the centre through an Indian Financial Code (IFC) is trying to dilute the powers of the Reserve Bank of India governor, the government on Monday said it will not act until it receives comments from all stakeholders.

“The government is awaiting comments from the public. It will take a view only after that,” finance minister Arun Jaitley told reporters here.

Separately, minister of state for finance Jayant Sinha told Deccan Herald that the final decision will be taken at the highest level and that the proposed draft does not reflect the government’s viewpoint.

“This is only a draft report. The veto power of the governor is an open issue. The public comments have been sought on it and the government will not act blindly,” Sinha told DH.
The draft IFC, open for public comments till August 8 proposes to remove the do away with RBI governor’s veto power in the monetary policy committee.

Under the present system, the RBI governor has veto power over the existing advisory committee of RBI members on monetary policy that sets interest rates.

The IFC also says that  inflation target for each financial year will be determined by the central government in consultation with the Reserve Bank every three years.

In the present system , the RBI has introduced inflation targeting and aims for inflation below 6 per cent in January 2016 and about 4 per cent thereafter.

The revised draft of IFC is based on the recommendations of the Financial Sector Legislative Reforms Commission (FSLRC), headed by Justice B N Srikrishna. FSLRC was set up by the finance ministry in March 2011 to review and rewrite the legal-institutional architecture of the Indian financial sector.

Umbrella legislation
The IFC, which is conceived as an overarching legislation for the financial sector, proposes a monetary policy committee (MPC) which will be entrusted with 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.

The MPC will  have seven members, majority of whom will be government representatives.
The debate on RBI governor‘s independence sharpened further when an important think tank of finance ministry NIPFP member Ajay Shah told UK-based daily Financial Times that the RBI governor was acting at the behest of Prime Minister Narendra Modi.

“Rajan (RBI Governor Raghuram Rajan) is doing what the PM tells him to do,” Shah told FT.

On Shah’s comments, Sinha merely said, “many commentators many views”.
On the lowering of crude oil prices in the global market, Sinha said it was a boon for India as it would help cut the import bill and the current account deficit of the government. However, a slowing China was a matter of concern, he said.