Agreement on Monetary Policy Framework (Urjit Patel Committee on Inflation)

The ‘Expert Committee to Revise and Strengthen the Monetary Policy Framework’, headed by then RBI Deputy Governor Urjit R. Patel was constituted in 2015.

The main objective of the committee was to recommend revisions and strengthening the monetary policy framework with a view to making it transparent and predictable.

Some Major Recommendations

• RBI should adopt the new Consumer Price Index (CPI) for anchoring the monetary policy.
• Set the inflation target at 4% with a band of +/- 2% around it.
• Monetary policy decision making should be vested in a Monetary Policy Committee (MPC) that should be headed by the Governor.
• Eliminate administered prices (MSP on food grains, LPG cylinders).
• Eliminate administered wages (MNREGA).
• Eliminate administered interest rates (interest subvention given to farmers).
• Implement Vijay Kelkar Committee’s recommendations on fiscal consolidation.
• Strictly follow the guidelines & targets of FRBM.
• The two schemes- Dependence on Market Stabilization Scheme (MSS) and Cash Management Bills (CMBs) may be discontinued and the government debt and cash management must be taken over by the government’s Debt Management Office.
• All fixed income financial products should be treated on par with the bank deposits for the purposes of taxation and TDS. Detachment of Open Market Operations (OMOs) from the fiscal operations and instead linked solely to the liquidity management. OMOs should not be used for managing yields on government securities.