The Reserve Bank of India (RBI) has a bunch of eminent economists whose job it is to advise it on monetary policy. They get together before the central bank’s quarterly monetary policy announcements and the minutes of their meetings are published after a few weeks. The group, along with a few top RBI people, is called the technical advisory committee on monetary policy.

A little more than a year ago, on 23 October 2012, the committee held one of its meetings. The economy wasn’t doing well and inflation was high. The wholesale price inflation data for September 2012 had just been announced and, at 7.8%, it wasn’t pretty. The committee members knew that industrial production growth in August 2012 was a mere 2.7% from a year ago. Gross domestic product growth for the June 2012 quarter had been a tepid 5.4%. To top it all, inflation in manufactured products other than food, which RBI used to take as a proxy for so-called core inflation, was at 5.6% for September. At the time of the meeting, the repo rate was at 8% and the cash reserve ratio was at 4.5%.

The committee agreed the Indian economy had slowed down considerably and was operating significantly below potential. On inflation, opinions were divided, with some members feeling there was scant evidence of excess demand. Others, however, warned that this was the last chance for the Reserve Bank to anchor inflation expectations. They were also worried about the current account deficit.

Five of the six external members of the committee felt RBI should reduce the repo rate at its next policy meeting on 30 October 2012. Their reason: “Even though inflation is sticky, there are no demand pressures and there is a need to revive investments." A lone member felt no change was necessary. Of the five members who wanted a rate cut, three rooted for a 25 basis point reduction, while two wanted a 50 basis point cut. One member wanted the cash reserve ratio (CRR) to be cut by 25 basis points. One basis point is one-hundredth of a percentage point.

On 30 October, governor D. Subbarao announced no change in the repo rate, but cut the CRR by 25 basis points to 4.25%. That was par for the course—the RBI governor was not bound by the committee’s advice and Subbarao frequently ignored it.

Consider now what happened a year later, on 23 October 2013. The economy had sunk even deeper into gloom. Economic growth for the June quarter was a mere 4.4%, one percentage point lower than where it had been in the June 2012 quarter. Growth in industrial production in August 2013 was just 0.6% from a year ago. But wholesale price inflation, at 6.5% for September 2013, was lower than a year ago, while core inflation was a mere 2.1%. In short, growth was lower than a year back and so was inflation. But the rupee had just recovered from a huge panic and depreciation had been rapid. The repo rate ruled at 7.5% and the CRR was at 4%.

This time too, the committee members were unanimous that growth was weakening. They were again divided on inflation, with some feeling that a good monsoon, soft commodity prices and arresting of rupee depreciation would lower inflation, while others disagreed. This time, the high level of consumer prices was also discussed.

The upshot: four members wanted the repo rate to be raised by 25 basis points, two wanted no change, while one wanted it brought down by 25 basis points. Governor Raghuram Rajan agreed with the majority, raising the policy rate to 7.75%.

Here’s the difference between the two meetings, separated by a year. In October 2012, with wholesale price inflation at 20 basis points below the repo rate, the majority of external members wanted a rate cut, some by as much as 50 basis points. A year later, with WPI inflation at 100 basis points below the repo rate, with a much weaker economy and much lower core inflation, the majority wanted a rate hike. What a difference a change of regime at the central bank makes.

Of course, monetary policy has to look not only at current conditions but to the future as well. It’s entirely possible that the committee members expected inflation to come down in October 2012 and expect it to go up now, especially with the prospect of the tapering and further rupee depreciation. It is possible that they are more concerned about the consumer price index, about tackling inflationary expectations and about ensuring positive real rates for savers to make a structural change in the current account deficit. But these concerns did not seem to have prevailed a year earlier.

Finally, take a look at another meeting of the committee two years ago, on 19 October 2011. WPI inflation was a high 9.7% in September 2011 while GDP growth in the June 2011 quarter was 7.5%. The repo rate was at 8.25%, around 150 basis points lower than the inflation rate. What did the external members of the advisory committee advise? Only one of them wanted the repo rate to rise by 25 basis points, while the other five opted for no change. Subbarao raised the rate by 25 basis points on 25 October, ignoring the committee.

Clearly, the majority of the economists on the advisory panel seem to have been behind the curve on a number of things. But that, of course, is a comment best made with 20:20 hindsight.

Manas Chakravarty looks at trends and issues in the financial markets. Your comments are welcome at