Government, RBI reach consensus on monetary policy committee: Jayant Sinha

NEW DELHI: The government and the Reserve Bank have reached a consensus on the structure for the proposed interest-rate setting Monetary Policy Committee (MPC), Minister of State for Finance Jayant Sinha said today.

"As far as MPC is concerned, we have reached a consensus with RBI. On that, a (Cabinet) note has been prepared. We will have to see when it gets to the Cabinet," he said here.

He did not elaborate on the composition as well as voting rights of the RBI Governor in the MPC, which is to replace the current practice of the Governor deciding on interest rate on advice of the technical advisory committee.

"Ultimately, we have to see we have to place it in Parliament. So, let's go through the process," Sinha said.

The government has proposed to set up the MPC, which will consist of representatives from the Finance Ministry and RBI to decide on interest rate.

The revised draft of the Indian Financial Code (IFC), released by the Finance Ministry last month, had suggested doing away with RBI Governor's veto power and wants a 7-member MPC to take decisions by a majority vote. Of the seven members, four would be government nominees and the rest from RBI.

Reports suggest the consensus arrived at between the government and RBI is for a six-member committee with equal representation from each side and the Governor having the casting vote.

Under the current system, the Reserve Bank Governor is appointed by the government, but controls monetary policy and has veto power over the existing advisory committee of RBI members and outside appointees that sets rates.

When asked if India needs to respond to China's interest rate and cash reserve ratio cut, Sinha said, "India is very well positioned during this time of turbulence. So we have to wait for it to settle down".

He said the government is pressing forward with the reforms agenda so that India continues to be very attractive investment destination and a great place to do business.

Asked about what steps the Finance Ministry would take to protect the steel industry from the impact of yuan devaluation, Sinha said like a number of other industries it is also facing competitive pressure and global overcapacity.

"Steel industry is struggling with those aspects. Obviously we are looking at variety of measures," he said.

Indian steel industry has been hit hard due to cheap import of the metal from China and devaluation of Yuan has further aggravated the situation.

While the government increased import duty on steel by 2.5 per cent earlier this month, some industry players have approached Directorate General of Safeguards for imposition of safeguard duty on the import.

Sinha also said that the banks are "very vigilant" about the non-performing asset (NPA) situation.

Gross NPAs of public sector unit (PSU) banks at the end of March quarter stood at 5.20 per cent compared with 5.63 per cent in December.


Earlier speaking at the CII's financial inclusion conference, Sinha said there is no trade off between being pro-market and pro-poor.

"We are giving enough incentives so that the distribution model are viable from an economic perspective and sustainable in long run because we recognise that our policies have to be pro-market if we want to be pro-poor. There is no trade off, if we have to be pro-poor, we have to be pro market," he said.

The Minister also underlined the need for increasing the engagement of private sector to drive financial inclusion. "We would like to have open platforms. We want platforms with open FDIs where we can have everybody's participation. We are constantly thinking how we can open the ecosystem, how we can increase competition and create lot of choices," he said.

The government, Sinha said, is making effort to set up an universal social security scheme to achieve financial inclusion.

"We know, only if we have every person able to access and use bank account as conveniently as possible, are we able to achieve our goal of universal social security. That's why it is an urgent priority and is historic and game changing in terms of what we are trying to accomplish," he said.

He said if the country is able to achieve the universal social security through bank accounts and mobile phones we will be able to have minimum government and maximum governance.

Sinha said the effort is to promote cooperative federalism and partner with states to build a financial inclusion ecosystem.