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India Seeks to Bury Controversy Over Central Bank

High-quality global journalism requires investment. Please share this article with others using the link below, do not cut & paste the article. See our Ts&Cs and Copyright Policy for more detail. Email ftsales.support@ft.com to buy additional rights. The Indian government plans within months to entrench central bank direction of the country’s monetary policy, with the aim of burying a controversial proposal to grant the government of the day control over interest rates, according to senior officials.

The paramount principle is that we have to have an independent central bank that is absolutely top-notch in its professional capability and its abilities to take the right decisions for India with a long-term view,” said one senior government official. “Whatever we do will be with the full agreement of the RBI [Reserve Bank of India].

Last week, India’s financial sector legislative reforms commission aroused alarm among proponents of an independent central bank, including economists and investors, when the ministry released the group’s latest version of the draft Indian Financial Code.

The proposal included a plan for a seven-person monetary policy committee similar to the Bank of England’s, except that the majority of its members would be appointed by the central government, not by the bank.
In a research note on Thursday, Capital Economics described this clause as a cause for concern given the track record of previous governments attempting to dampen the central bank’s power and independence”. Under the code, the RBI would also be responsible for meeting inflation targets in spite of not having control of interest rates.

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