Monetary Policy Committee

A Rough Research Project submitted in partial fulfillment of

the requirements for completion of the course Administrative
Law for obtaining the degree of B.A., LLB. (Hons.)

Submitted by
Aanchal Srivastava

Roll No. 2101, Session 2019-2024

Under the Supervision and Guidance of

DR. SHIVANI MOHAN
Assistant Professor

February, 2022

Chanakya National Law University,

Nyaya Nagar, Mithapur, Patna 800001
 1

CHAPTER 1

INTRODUCTION

The Monetary Policy Committee (MPC) is a special committee constituted by the

Central Government under Section 45ZB, which determines the policy interest rate
required to achieve the inflation target.

The MPC reviews the surveys conducted by the Reserve Bank of India to gauge
consumer confidence, households’ inflation expectations, corporate sector
performance, credit conditions, the outlook for the industrial, services and
infrastructure sectors, and the projections of professional forecasters. The MPC also
reviews in detail staff’s macroeconomic projections, and alternative scenarios around
various risks to the outlook. Drawing on the above and after extensive discussions on
the stance of monetary policy, the MPC adopts a resolution for same.

The Monetary Policy Committee is responsible for fixing the benchmark interest
rate in India. The meetings of the Monetary Policy Committee are held at least 4 times
a year (specifically, at least once a quarter) and it publishes its decisions after each
such meeting.

The committee comprises six members - three officials of the Reserve Bank of
India and three external members nominated by the Government of India. They need to
observe a "silent period" seven days before and after the rate decision for "utmost
confidentiality". The Governor of Reserve Bank of India is the chairperson ex
officio of the committee. Decisions are taken by majority with the Governor having the
casting vote in case of a tie. The current mandate of the committee is to maintain 4%
annual inflation until 31 March 2021 with an upper tolerance of 6% and a lower
tolerance of 2%.[1]

The Reserve Bank of India Act, 1934 was amended by Finance Act (India), 2016 to
constitute MPC which will bring more transparency and accountability in fixing India's
Monetary Policy.[2] The monetary policies are published after every meeting with each
member explaining his opinions. The committee is answerable to the Government of
India if the inflation exceeds the range prescribed for three consecutive quarters

1.1. Aims and Objectives of the Study

The aim and objective of this research includes

 To know and understand the working of the Monetary Policy Committee.

 To understand the fixation of benchmark interest rate and its need.

1.2. Hypothesis

The Monetary Policy Committee analyzes the economic surveys conducted by the RBI
and in turn fixes the benchmark interest of monetary policies in India.

1.3. Research Questions

 What is the need of constitution of a committee to fix interest rates of monetary

policies in India?
 How the calculation of interest rate does actually take place?

1.4. Research Methodology

The researcher will do doctrinal type of research in which he will go through the
primary as well secondary sources. The researcher through this methodology will be
able to get an apt picture of the problem in question. The doctrinal method helps in
doing a comparative study of the topic. To satisfy the need of the project, the
researcher will go through the RBI data. Then, the researcher will cross check the
commentary of those provisions. This methodology will be the most effective way in
preparing the project.

1.5. Sources of the Data

The researcher has primarily referred to the secondary sources like past research
studies, journals, books, articles and internet, while primary data involves the website
of RBI and RBI articles.
1.6. Limitations of the Study

The research is limited to academic purpose. As study is to be done within a limited

time, the researcher has paucity of funds. Owing to the large number of topics that
could be included in the project, the scope of this research paper is exceedingly vast.
However in the interest of brevity and due to certain restrictions and limitations of time
and research will not be able to deal with the topic in great detail.

1.7. Scope of the Study

The scope of this study is to present a critical analysis of the functional overlaps of the
doctrine of separation of power in the Indian government system. This study will
benefit the community of legal and political research and students.

1.8. Tentative Chapterization

1. Introduction

1.1. Establishment & Purpose

1.2. Composition

2. Monetary Policy

2.1. The goals of monetary policy

2.2 The monetary policy framework

2.3. The monetary policy process

3. Instruments of Monetary Policy

3.1. Repo Rate

3.2. Reserve Repo Rate

3.3. Bank Rate

3.4. Varying Reserve Ratios

3.5. Open Market Operation

4. Method of fixation of interest rate

5. Conclusion

BIBLIOGRAPHY

Books and Acts

1. Reserve Bank of India

2. Reserve Bank of India Act, 1934

WebPages

1. https://www.rbi.org.in/Scripts/BS_PressReleaseDisplay.aspx?prid=51754
2. http://pib.nic.in/newsite/PrintRelease.aspx?relid=151264
3. https://pib.gov.in/newsite/printrelease.aspx?relid=146546
4. http://economictimes.indiatimes.com/news/economy/indicators/india-
adopts-inflation-target-of-4-for-next-five-years-under-monetary-policy-
framework/articleshow/53564923.cms
5. http://www.business-standard.com/article/finance/no-veto-power-for-rbi-
governor-in-deciding-interest-rates-says-draft-code-115072400057_1.html
6. https://www.livemint.com/news/india/newly-appointed-deputy-governor-to-
look-after-rbi-s-monetary-policy-division-11579097609165.html
7. http://www.thehindu.com/todays-paper/tp-business/mpc-members-to-get-
rs-15-lakh-per-meet-must-disclose-assets/article19338895.ece