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New Delhi: The finance ministry on Monday accepted for the first time that controversial changes in the original Indian Financial Code (IFC) were not introduced by the Financial Sector Legislative Reforms Commission (FSLRC) as it had earlier claimed, although it stopped short of owning up authorship for these.

The ministry tried to distance itself from the changes made, particularly the proposal on the composition of the monetary policy committee (MPC), saying this came from one of the suggestions to the original IFC draft.

The controversial change in the code, released for public discussion on 23 July, vests with the Union government the right to appoint four members to the seven-member MPC of the Reserve Bank of India (RBI) and removes the central bank governor’s veto power in decisions made by the advisory committee on monetary policy changes. This simply means that the governor will have to go with the majority view.

Some experts saw it as a direct attack on the RBI governor, a move that they say will erode the autonomy of the central bank. Others saw it as a move away from the current system, which vests the RBI governor with too much power, to a more institutional and transparent system.

On Monday, Mint quoted FSLRC chairman B.N Srikrishna as saying that the changes in the revised IFC represent the government’s views; he distanced himself and the FSLRC committee from the report.

That contradicted the finance ministry’s response to the heat generated by the 23 July statement.

As the government started facing widespread criticism from all quarters following that, chief economic adviser in the finance ministry Arvind Subramanian, junior minister Jayant Sinha and senior minister Arun Jaitley sought to distance the finance ministry from the revised IFC, claiming it to be a report by FSLRC, which was disbanded in 2013 after it submitted its report.

On Monday, in a hurriedly-called press conference, finance secretary Rajiv Mehrishi said the revised IFC put out by the finance ministry was only a discussion paper and that it would be incorrect to derive the conclusion that the government has decided to curtail the powers of RBI.

“Various suggestions came from various sources. Best effort was made to collect and collate these suggestions by removing duplicacies for use of the committee that we constituted under Justice Srikrishna himself. A second draft, which can be called IFC 1.1, has been put in public domain and comments have been sought. Now quite obviously, if the government had made up its mind, there would be no need to seek comments from the public."

The government had constituted a three-member expert committee under Srikrishna to review the revised IFC prepared by the finance ministry and to correct its legal language.

Asked why the three top functionaries of the finance ministry credited the authorship of the revised code to FSLRC, Mehrishi said: “Some confusion has been created basically because it is called IFC 1.1. So, there may be some confusion."

Mehrishi said the government currently has no views on the 400 sections in the revised IFC. “Government decisions are made in a manner that is well laid out. What government’s view is will ultimately be revealed when the government places the draft bill in Parliament."

On the structure of the MPC, Mehrishi said a final view will be taken based on the feedback and international best practices and in consultation with all important stakeholders. “One of the suggestions received was that this should be four (members appointed by the government) and three (by RBI). That is the current situation. There are other suggestions also on the table."

Mehrishi was evasive when questioned on the origin of the controversial provision.

“It is people of India’s report. There is no need for ownership," he said.

The finance secretary said since the government has signed a monetary policy framework agreement with the RBI, the constitution of the MPC has become an issue of importance and urgency.

“We are in discussion with RBI and the RBI governor on the form and manner of MPC. In fact, we arrived on a position which has been largely agreed upon. But I can’t disclose that to you. It will be disclosed in Parliament. We want to do it as early as possible. Whether it will happen in one month, two months, three months or six months, depends on so many other circumstances," Mehrishi said.

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