“In a political economy set up, it is difficult to have intellectual independence,” said Rupa Rege Nitsure
Reserve Bank of India
Mumbai/New Delhi: Proposals from a government panel reviewing monetary policy rattled markets on Friday, as foreign and domestic traders said a move to increase the government’s weight in decision-making could undermine the Reserve Bank of India’s independence.
Under the panel’s latest proposals, the government would appoint four out of seven positions on a planned monetary policy committee and the RBI governor also has no veto power.
“The government appointing the majority of the external members in the monetary policy committee will dilute the independence of the RBI,” said Rupa Rege Nitsure, chief economist at L&T Finance Holdings. “In a political economy set up, it is difficult to have intellectual independence,” she said.
Traders said they worried that if the proposed changes were implemented it could hurt the RBI’s ability to push ahead with policies like inflation targeting. “After buying into India given the way RBI has managed inflation, forex, investors will be worried about the credibility of the decision-making process if the government has a bigger say than the RBI,” one foreign bank trader said.
( Source : reuters )
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