9.2. Apprehensions against Monetary Policy Committee

♤ Undermining of RBI as monetary authority: Now MPC would be the final authority on monetary policy and its implementation. Therefore, some argue that it would undermine the role of RBI and its governor in deciding on matters related to monetary policy.

♤ Governmental interference: Some argue that due to nominated members, MPC would function as an arm of the government, thereby would compromise on the delicate balance between the price stability and growth.

♤ Unable to control supply side inflation: Experts are of the view that since MPC would focus only on maintaining targeted inflation through monetary means. Therefore, it can’t control the inflation which is due to supply side constraints.

Notwithstanding these apprehensions, this reform has long been needed in line with the international practice. The MPC has sufficient autonomy to function independently of the government, with requisite authority of the RBI in monetary matters. It is because the decision would be taken by majority vote with RBI governor having the casting vote. However, for effective check on inflation and growth stability the fiscal policy must work in tandem with the monetary policy.