Who is in charge of it?

A specific monetary policy committee hasn’t been set up yet. The Financial Sector Legislative Reforms Commission recommends that the committee contain three external members picked by the government, two external members picked by consultation with the RBI, and one member of the RBI board who is in an executive capacity.

The benefit of this kind of set up is that if the RBI member decides to veto any policy, he will be required to explain it to the external members as well as release a public statement.

In recent years, there has been a lot of contention between the RBI and the government over inflation and GDP growth. Making inflation targeting a central tenet of monetary policy will ensure that there is consensus. As per the new framework, the RBI will be required to release a document every six months elucidating the possible causes of inflation as well as the inflationary forecast for the next year and a half.

This procedure also helps in ascertaining the accountability of the RBI governor.

For example, if the target in maintaining the inflation rate is not achieved for three consecutive quarters, the governor will have to provide reasons for the delay as well as measures to correct the state of affairs. The governor will also have to provide the time period by which the goal will be reached.

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