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Informist, Thursday, Oct. 3, 2024

 

By Siddharth Upasani

 

MUMBAI – The Indian government finally announced the names of the next set of external members on the Reserve Bank of India's Monetary Policy Committee on Tuesday, less than a week before they are supposed to sit down at the central bank's headquarters and vote on the policy repo rate. Of course, this is still an improvement from 2020, when the RBI was forced to postpone the meeting of the MPC following a delay in the appointment of the external members.

 

Whatever the reason for the last-minute appointments, the names themselves warrant close examination. Of the three new external members named this week, only Saugata Bhattacharya has had a career that can perhaps be thought of as typical of a rate-setter. Formerly chief economist of Axis Bank and now a senior fellow at the Centre for Policy Research, Bhattacharya's past work is steeped in the mechanics of monetary policy.

 

This is not to undermine the qualifications of Ram Singh or Nagesh Kumar; both have impeccable academic qualifications and professional backgrounds. But their focus areas are not macroeconomics or monetary policy. Singh, for instance, lists public economics, taxes and public finance, law and economics, banking and financial regulations, and the Indian economy among his areas of expertise. Kumar's research interests include industrial policy, competitiveness and technology and innovation policies, foreign direct investment and international trade, regional economic integration and industrial restructuring in Asia, South Asian cooperation, inclusive and sustainable development, and transport connectivity in South Asia.

 

Tellingly, this is the first time we have an MPC, none of whose three external members ever served on the erstwhile Technical Advisory Committee on Monetary Policy of the RBI.

 

It goes without saying that Singh and Kumar are obviously learned enough to vote on what should be the level of the repo rate. If anything, they might be more equipped to do so as their backgrounds might provide additional insight into interlinkages in the Indian economy, almost as if modern monetary policy formulation demands such diversity.

 

The first set of external members – Chetan Ghate, Pami Dua, and Ravindra Dholakia – were all macroeconomic experts. The government increased the diversity somewhat with the second set – while Ashima Goyal's expertise lay in macroeconomics and Jayanth Varma's in financial markets and their regulation, Shashanka Bhide had worked heavily in agricultural economics. One of the external members from the first set told this reporter at the time of Bhide's appointment that Bhide's selection was important as his inputs would be crucial given that food inflation was becoming a persistent headache for the MPC.

 

Speaking in Kathmandu on Sept. 24 at the Nepal Rashtra Bank, RBI Governor Shaktikanta Das spelt out how monetary policy has changed in the first 25 years of this century: links between price and financial stability are now better understood and the mandate of central banks is now broader. He then went on to list five challenges that central banks would face in the 21st century: climate change, geopolitical issues, digital finance, innovations in the fintech space, and artificial intelligence and machine learning.

 

With increased interlinkages between the real economy and markets, the challenges facing India and, consequently, policymakers are a lot more complex now. It is natural then to have diverse subject matter experts to help tackle them. We should not be surprised if the external members appointed to the MPC in late 2028 are well versed in climate change, geopolitics, fintech, and artificial intelligence.  End

 

Edited by Avishek Dutta

 

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