The government has no intention to dilute the powers of the RBI and the revised draft financial code unveiled on Thursday does not reflect the views of the finance ministry , top government sources have said.
The draft Indian Financial Code, which proposed the contours of a new Monetary Policy Committee (MPC) where the government would have a dominant role, is only a discussion paper. The sources said no decision has been taken on the report and comments from stakeholders have been sought. They pointed out that the government and the RBI will discuss all issues before any decision.
?The draft financial code is based on the recommendations of the Financial Sector Legislative Reforms Commission (FSLRC), headed by Justice B N Srikrishna and they don’t reflect the views of the finance ministry at all,? the sources said. ?We have not taken any final view on the MPC and governor’s veto power. The draft report has been put on the website and it would be considered after examining all the views. We have no timeline to decide the structure of MPC,? the sources said.
The revised draft code has proposed a dominant say of the government in deciding how interest rates are set and also sought to remove the veto power of the RBI. The proposed changes regarding MPC attracted strong criticism as there is an impression that the central bank’s role in deciding interest rates could be curtailed.
At present, the RBI is the sole agency responsible for fixing interest rates and the governor only consults the finance minister. When FSLRC suggested setting up of a seven -member MPC, it said the governor would have powers to override the panel but would need to issue a detailed public statement.