The government had last week named three academics to join Reserve Bank of India Governor Urjit Patel, his deputy in charge of monetary policy and another central bank executive on the new Monetary Policy Committee (MPC).
Indian Statistical Institute Professor Chetan Ghate, Delhi School of Economics Director Pami Dua and IIM-Ahmedabad Professor Ravindra Dholakia do not yet have vigilance nod in place.
“Since they are private citizens, inputs of the Intelligence Bureau (IB) will have to be taken, besides the mandatory clearance by the Central Vigilance Commission (CVC),” a top source in the know said.
Also, a no-objection from the tax department may be essential.
“I am not sure how fast can all these authorities act and give all the necessary clearances. The next monetary policy review is scheduled for October 4 and MPC will do that job if all clearances are in place before that. Otherwise, Patel will decide on the interest rates,” he clarified.
This will be the first monetary policy review after appointment of Mr Patel as head of the central bank earlier this month. He took over from Raghuram Rajan on September 4.
Each of the six members on the MPC will have one vote. In the case of a tie, Mr Patel will have a casting vote in deciding on the rate as guided by the newly-established inflation framework.
He, however, would not be able to veto a majority decision.
Also, for MPC to decide on the interest rate, a schedule of its meetings has to be announced at least a week before the first one is held, according to the rules framed by the government.
The source said the government is keen that MPC should take over the responsibility of setting interest rates from October 4 itself.
Like Mr Patel, the three members nominated by the government on MPC are low-profile. While Mr Patel has a three year term, which can be extended by another two years, the committee members will serve for a term of four years.
While the previous governor Mr Rajan was often accused of keeping borrowing costs too high and hurting growth, the Monetary Policy Committee will be guided by the inflation target set by the government last month. It has to ensure consumer inflation stays in the 2-6 per cent range.