Finance Secretary Rajiv Mehrishi today clarified that the government and the RBI have ‘mutually agreed’ on the composition of the proposed monetary policy committee.

This puts to rest the controversy generated by the revised draft of the Indian Financial Code (IFC) that proposes to take away the veto power of the RBI Governor in deciding the policy rate.

Contrary to views expressed by Finance Minister Arun Jaitley, Minister of State Jayant Sinha and Chief Economic Advisor Arvind Subramanian, the Finance Secretary said that the draft code is neither the view of FSLRC (Financial Sector Legislative Reforms Commission) nor of the government.

“People of India own this draft report,” he said adding “if the government had made up its mind then there would have been no need to seek comments from the public. The fact that we have sought comments indicates that the matter is under discussion.”

The revised draft of the IFC, which was released by the Finance Ministry last month, recommended a casting vote for the RBI governor in the monetary policy committee instead of the veto power suggested in the earlier draft.

The revised draft also recommended that the government will appoint four of the seven members on the committee, which will decide the policy rate by a majority vote.

The proposals in the revised draft had given rise to speculation that the government was trying to curtail the powers of RBI. “This is a discussion paper. From here to jump to the conclusion that the RBI’s powers have been curtailed would be incorrect,” he said.

Talking about present status of the monetary policy committee, Mehrishi said, “We are in discussions with the RBI governor on the form and manner of monetary policy committee and in fact now we have a position, which is mutually agreed, but which we are not going to disclose right now. (We) can’t disclose because it will ultimately be disclosed in Parliament”.

The Finance Secretary said the proposal to set up a monetary policy committee has taken some urgency after the government signed the monetary policy framework agreement with the RBI.

According to the monetary policy framework agreement, signed in February, RBI will target to bring consumer price inflation to below 6 per cent by January and 4 per cent with a band of (plus-minus) 2 per cent from the next financial year starting April.