Should RBI Governor’s Veto power On Deciding Rates Be Removed?
Should RBI Governor’s Veto power On Deciding Rates Be Removed?
On the ongoing controversy of who should decide interest rates, the RBI Governor Mr. Raguram Rajan stated that the veto power assigned to RBI governor should be removed. He said that it would be a much better idea to form a committee to decide the interest rates. The revised draft of the IFC issued by the Finance Ministry in July suggested establishing a seven-member MPC to decide on the interest rates by opting for vote system. Out of the seven members, three would be from RBI and the rest will be government nominees. Do you favor the formation of MPC? Should RBI Governor’s Veto Power on deciding interest rates be removed?
Yes
- Whenever the decision making power is assigned to an individual, the pressure also solely shifts on the decision maker. In such a scenario, the probability of making a wrong decision is higher.
- The veto power forces the RBI governor to take into account the expectations of the government and the people. Just for the say the power lies with the RBI governor, but practically the opinion of government and financial institutions weighs on decision.
- Forming a committee is a much better idea as there will be seven members who will present their own view points. Such types of decisions are marked better compared to an individual decision.
- Elimination of veto power will clearly pave way for sharing of responsibilities which will further reduce internal and external pressure that falls on a single person.
- The establishment of a MPC committee will give space to policy continuity even in case any single member changes. It would also be applicable on the governor.
No
- The views of the seven members at any moment can significantly differ from each other. There would be a requirement of an agreement before the decision is implemented. This process will end up resulting in a lot of contested/controversial issues down the road.
- There is a famous statement, one person’s trash is another person’s treasure, and therefore this process can close the door for best decisions if more members aren’t enamored with the consensus expectations.
- The veto power is an ideal tool placed into the system largely by the status quo powers. Most of the times, it results in good for a lot of people.
- Instead of involving more people for taking interest rates decisions, it is better that the power remains with the RBI governor. This way people can get an unanimous decision in less time. There is no need to spend time on identifying the points of compromise.
Conclusion
Elimination of veto power by stating that it creates pressure on RBI governor is not convincing. The pressure will always come along with the responsibilities. Even if a team of seven members is established the pressure of taking a right decision will be there. When the veto power is with the governor, there is no probability of facing any stalemate. In order to make a rationale decision, the decision making power should just lie with one person.
Discussion
- RE: Should RBI Governor’s Veto power On Deciding Rates Be Removed? -Deepa Kaushik (08/07/15)
- RBI Governor's plea for the veto power to be removed is understandable. Balancing the pressure from Government, the financial institutions, and stabilising with the requirements of the common man is definitely a difficult job. The RBI Governor comes to a situation on the tip of sword while making such a decision to decide the interest rates.
It definitely becomes a difficult decision to please the Government as well as the common man. Though he has his duties and responsibilities, yet there remains an unseen and unexplainable pressure from the Government which he cannot overhear. We need to think practically and sensibly before blaming the person having the veto power. He is also residing in the society, where he need to keep a balance by forming an acceptable platform between the government and the common man, thereby guarding the economic status of the country.
Forming the committee is not a resolution to the concern of balancing the pressure. Instead it would increase the problems as the decision would get delayed with multiple views and opinions flowing in. There can be a committee which should be formed by the people from various sectors of the financial institutions, which would include the common man, business sector, Government and the banks with RBI having its own members. This committee is good to put in their opinion as the representative of their respective departments. However, the final veto power should be with a single person only, for the efficient and smooth functioning of the system; and that person could be no one better than the RBI Governor.
Hence, we can find some alternate ways to ease out the working of the RBI Governor in this direction. However, it would be apt only if the veto power remains in the hands of the RBI Governor.
