Concerns regarding Urjit Patel Committee Recommendations

♤ In a developing country, the Central Bank cannot escape from the difficult challenge of weighing the growth-inflation trade off in determining its monetary policy stance.

♤ Experts feel that it is premature to use the Consumer Price Index (CPI) as anchor since the data had imperfections.

♤ Monetary policy is not the only variable affecting inflation especially in India where inflationary pressures emerge from supply side constraints. According to former RBI Governor D Subbarao, 50 per cent of inflation is beyond the control of monetary policy.

♤ A necessary condition for inflation targeting to work is efficient monetary transmission. In India there are several factors inhibiting the monetary transmission process such as an asymmetric relationship between depositors and banks, administered interest rates on postal savings that are not adjusted in line with prevailing interest rate trends and rigidities in the financial markets.

♤ Recommendations do not talk about exogenous shocks which may spike inflation( e.g. Oil price hike)

♤ Monetary policy is ill-equipped to accurately forecast future inflation trends

However some experts also believe that the panel recommendation for adopting monetary policy, which is centered on inflation, will be a shift from traditional policymaking, and will also bring RBI policy calibration closer to the international practices.