Avoidable uncertainty: On RBI monetary policy statement

Appointment processes for critical financial policy roles need an overhaul

October 09, 2020 12:02 am | Updated 12:21 pm IST

The Reserve Bank of India will release its third bi-monthly monetary policy statement for 2020-21 on October 9, instead of October 1 as originally envisaged . This will be at the culmination of a three-day review of the pulls and pressures in the economy by the monetary policy committee (MPC). The review began on Wednesday instead of September 29, after the RBI had to reschedule it on the eve of the meeting following the government’s failure to appoint its three nominees to the six-member committee. This is the first such instance of the RBI deferring its bi-monthly review in recent years. That the terms of the government’s first set of MPC nominees would expire at the end of August was known from the time it was constituted four years ago. Also, the MPC’s meeting schedule is released by the central bank in April. Even if the hunt for new members was disrupted by the pandemic, the government had ample time to expedite these appointments after August 6, when the last policy review took place. The new members — academic Ashima Goyal with interests in the interplay of fiscal and monetary policies, noted agriculture economist Shashanka Bhide, and former SEBI member and financial markets scholar Jayanth R. Varma — are unexceptionably good picks who would lend a holistic world view to the MPC’s deliberations. However, for their first meeting, they would have had effectively just 24 hours to prepare.

In normal times, one could put this avoidable delay down to bureaucratic lethargy, but these are not normal times. A lot has transpired since the last policy review; official data revealed a 23.9% contraction in the economy in Q1, jobs and incomes remain under pressure, and inflation continues to reign above the 6% upper limit of the price stability mandate agreed to in 2016 by the RBI and the Centre, which entailed the setting up of the MPC. The government has for now stuck to its ₹12-lakh crore borrowing plan, which includes space for ‘unforeseen’ spending. Also, States need to borrow more in the coming months including to meet GST compensation shortfalls. An almost casual approach towards continuity in such an important policy review body, at a time when markets are keen to know India’s fiscal and monetary stance and the RBI’s inflation and growth projections for the year, is unacceptable and sends a clumsy signal to global investors. Some lateral thinking may be needed to conjure up fresh stimulus measures for the stuttering economy, but policy mandarins should not lose sight of routine decisions. With the last two RBI Deputy Governors’ vacancies being filled after protracted gaps of about six months each, appointment processes, especially for critical financial policy roles, are clearly in need of an urgent overhaul. And the government could surely burnish its standing among investors if it mandated explanations and strictures for missed timelines as part of such a revamp.

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