Is this officially the end of RBI's autonomy? Arun Jaitley's to seek nod for 'no veto power' for RBI governor!

The RBI governor might not enjoy veto power anymore on the Monetary Policy Committee but could cast a vote, as per the Finance Ministry proposal which could soon be presented to the Cabinet.

The proposal is based on an understanding that the ministry has reached with the Reserve Bank of India on the contours of the committee, reported the Economic Times.

The government would move legislation in Parliament, to amend the RBI Act after the Cabinet’s nod, paving the ground for the creation of the committee, setting in motion a key reform that was in Finance Minister Arun Jaitley's February Budget.

The panel is expected to have balanced representation from the central bank and the government, but RBI will also have a say in the appointment of any external nominees, officials said.

"There will be inter-ministerial consultations on the MPC proposal and then it would be taken to the Union Cabinet," said a finance ministry source.

"Understanding has been reached on MPC to the comfort of RBI," said another finance ministry official. The structure is at variance with that proposed in the draft Indian Financial Code (IFC) recently posted on the Finance Ministry website that had proposed a seven-member MPC with four members appointed by the government and no mention of a veto for the governor.

That had led to a controversy, with critics accusing the government of seeking to clip RBI governor's wings, forcing the ministry to backpedal and say the draft merely encapsulated the views of the "people".

Finance Secretary Rajiv Mehrishi was at pains to point out on Monday that agreement with the central bank had been reached on MPC and the storm further abated the next day after RBI Governor Raghuram Rajan said a veto was not necessarily a good thing. A committee would be far more effective, he said.

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