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Mumbai: Outgoing Reserve Bank of India (RBI) governor Raghuram Rajan has been accused many times of stifling growth by being stingy with rate cuts.

But Rajan has defended his policy decisions by stating hard data, every time. On Sunday, he sought to squash critics who batted for more rate cuts by asking them to show how inflation is low.

But all this would not matter down the line as the monetary policy and interest rate setting will be a committee-based decision and not a one-man show.

The government and the RBI are working towards setting up a monetary policy committee (MPC), which will have three members each from the central bank and the government, including the governor.

The central bank chief will have a casting vote in case of a tie. This is a departure from the current set-up, wherein the governor has the final say in pretty much everything regarding the monetary policy.

But will an MPC ensure faster and more rate cuts?

To find an answer, we looked at the track record of a substitute of the MPC, the technical advisory committee (TAC) that currently advises the RBI on interest rates.

The TAC is made up of external academicians and members from within the RBI, including the governor, and it meets ahead of every monetary policy. The current TAC has five external advisors (it had seven members until September 2015).

To be sure, the TAC has no voting rights, while the MPC will have them. It is an advisory committee and the RBI can disregard its advice, which governors have done in several instances.

A look at the votes of the TAC members at every monetary policy ever since Rajan took charge at the central bank in September 2013 shows that the committee has been more dovish than Rajan.

Monetary policy and rates were reviewed 18 times by Rajan between October 2013 and June this year, following a preset schedule. The central bank had cut rates in March 2015 in an out-of-turn move. Of the 18 times rates were reviewed, the TAC met 13 times, mainly because the committee was not convened for mid-quarter reviews at the start of Rajan’s RBI stint.

Out of the 13 times the TAC met during Rajan’s tenure, rate cuts received majority vote in six meetings. But Rajan considered the majority vote on rate cuts in his final decision only twice.

Even in the quantum of rate cuts, the governor was less dovish than the committee. In the two instances when Rajan sided with the TAC majority vote, he chose to cut rates by the lowest margin of 25 basis points (bps). One bps is one-hundredth of a percentage point.

For instance, in June 2015 when the TAC met ahead of the policy, the call was unanimous to cut interest rates. But the committee of seven members differed widely over the quantum of rate cut. Four members wanted a 25 bps reduction, two asked for a deeper 50 bps and one for an unprecedented 75 bps cut. The RBI had reduced its repo rate by 25 bps at that time.

In April this year, when the RBI slashed its repo rate by 25 bps, the decision was backed by just two members of the five-member committee. Two other members had advised a deeper 50 bps cut.

To be fair, in September 2015 when the TAC met ahead of the policy, an overwhelming majority voted on a rate cut. But within the seven-member team, three advised for 25 bps reduction, two asked for 50 bps cut, while another member was unsure between 25 and 50 bps. In a rare instance, the central bank disregarded the majority and cut its repo rate by a deep 50 bps.

The MPC is a different animal compared with the TAC as the former will have voting power. The composition of the MPC may or may not include academicians and the profile of the members would weigh on how they perceive macroeconomic policy. Further, the MPC members nominated by the government will have a tenure of four years, while members of the TAC, which was first constituted in 2005, have had tenures of two years. These are important differences. But if one were to imagine a committee-led interest rate regime, the TAC offers good insights.

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