The Finance Ministry has come up with a revised draft of the Indian Financial Code (IFC) and sought stakeholders’ comments on the same by August 8, 2015. The Draft IFC, which has been revised in the light of the comments received from the public at large and all stakeholders through a Press Release on 6th June 2013, includes modifications mainly related to the strengthening the regulatory accountability of financial agencies, removing the provision empowering FSAT to review Regulations, rulemaking and operational aspects of capital controls, monetary policy framework and composition of the Monetary Policy Committee (MPC), regulation of systematically important payment system and others, removing the provision of special guidance etc.
Government has further stated that the modifications have taken into consideration the enactments subsequent to the submission of the FSLRC report; namely The Pension Fund Regulatory and Development Authority Act, 2013 (PFRDA Act) and Securities Laws (Amendment) Act, 2014. The government has also said that the modifications in the revised draft IFC remain consistent with the overall structure and philosophy of the FSLRC report.
The most striking feature of the Draft IFC is that Monetary Policy making will become a government affair rather than being a preserve of the Reserve Bank of India. The draft, put out by the Finance Ministry, among other things recommends setting up a seven-member Monetary Policy Committee (MPC) to decide on the policy rate by majority vote. Crucially, four of these members are to be appointed by the government and three members from the RBI side. The government has proposed taking away the RBI governor’s authority to veto the interest rate decision of the Central bank’s monetary policy committee. Currently, the governor consults a technical advisory committee, but does not necessarily go by the majority opinion while deciding on the monetary policy stance.
