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No Veto for RBI Governor

"All questions which come up before  any meeting of the monetary policy committee shall be decided by a majority  of votes by the members  present  and voting, and in the event of an equality of votes , the Governor shall have a second or casting vote,"  states the Union Budget 2016/17.

twitter-logo Anand Adhikari        Last Updated: February 29, 2016  | 19:50 IST
RBI governor Raghuram Rajan

The RBI Governor Raghuram Rajan will not enjoy any veto power in the new monetary policy framework , but will have a  second  or casting vote in case of a tie amongst the members.

"All questions which come up before  any meeting of the monetary policy committee shall be decided by a majority  of votes by the members  present  and voting, and in the event of an equality of votes , the Governor shall have a second or casting vote,"  states the Union Budget 2016/17.  

This has been a major departure from the current system where the Governor decides the interest rate direction in the economy.   In the last 3-4 years ,there has been discord between the government and the RBI over the  interest rate movement. The government  often push for interest rate cuts in the economy to spur growth , whereas RBI  is concerned over the inflation. Broadly, the RBI's  mandates over the years has been to keep inflation stable and low for supporting long term growth in the economy.    

HIGHLIGHTS:Union Budget 2016

The current RBI Governor  Rajan is also seems to be in favor of a collective decision making than the Governor alone taking the responsibility  of  interest rates.  As part of the new monetary policy framework, there is also an accountability factor in case of a failure to maintain inflation target. The RBI has to file a report to Central Government giving the reasons for failure , remedial actions  and an estimate of the time period within which the inflation target will be  achieved.

FULL COVERAGE:Union Budget 2016

In his budget , the finance minister Arun Jaitley has announced the finer details of new monetary policy framework agreed between the RBI  and the government. There will be six members in the  monetary policy committee - three from RBI  and three  would be  nominated by the government.  The three RBI  members would be Governor , Deputy Governor and executive director. The remaining three members would be  appointed  by the central government  on the recommendations made by a six member search committee comprising  of RBI Governor, cabinet  secretary , Secretary ( Department of company affairs)  and three  experts in the field  of economics  or banking  etc.  

RBI Governor will also not have much say in  the six member search committee as he is just a member and not chairperson of this search committee.  Cabinet Secretary  will be the chairperson of the search committee. 

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