[NEW DEHLI] India has an agreement on a new monetary policy committee that Prime Minister Narendra Modi's government will soon announce, according to central bank Governor Raghuram Rajan.
The rate-setting panel largely meets the goal of transitioning from a system where the governor alone is responsible for decisions in order to insulate it from outside pressure and ensure continuity of policy, Mr Rajan said in an interview on Friday in Jackson Hole, Wyoming, where he's attending an economic symposium.
"The shape of the committee that we've agreed to with the government - the government is going to announce this - does do a lot of this," Mr Rajan said, adding that it was different from a proposal circulated in July that would allow the government to appoint the majority of members.
"There's an agreement with the government, which is not that plan," Mr Rajan said. He didn't give more details.
Representation on the committee had been a key sticking point between Mr Rajan and Mr Modi's administration as they look to finalise a rate-setting structure similar to the Federal Reserve Board or Bank of England. They agreed earlier this year on an inflation target, one of the biggest reforms in the bank's 80- year history.
Mr Rajan has resisted growing pressure from the Finance Ministry to ease policy. He left borrowing costs unchanged at 7.25 per cent at an Aug 4 meeting after three cuts this year to meet his inflation target of 6 per cent by January.
Earlier this week, India's Junior Finance Minister Jayant Sinha said the government reached a consensus with the central bank on a monetary policy committee that would go to the cabinet for approval. He didn't provide details on the panel's structure.
The committee would replace the current rate-setting system once the RBI Act of 1934 is amended in parliament.
Having a committee would make it easier for individuals to resist pressure and ensure that "monetary policy doesn't change overnight" if one person drops out, Mr Rajan said.
"We also need a transition path from where we are now to that committee," Mr Rajan said. "It can't be that overnight the committee takes over and nobody understands what the views of the committee are."
While India is projected to overtake a slowing China as the world's fastest-growing major economy, it's shown mixed signals of strength. Falling exports, weak investment and stressed assets in the banking system indicate that the Indian economy is still expanding below its potential.
Mr Rajan said Friday that he sees a "mood of optimism" in India's economy and that the nation is relatively insulated from a slowdown in China.
He called for lawmakers to overcome their differences to implement a goods and services tax, which he said would be "one of the most important changes in India." He also said a proposed bankruptcy code would also be "extremely important." "If we can get a good bankruptcy code, we can start issuing long-term bonds, which is absolutely necessary to finance infrastructure, finance all the big things the government plans," Mr Rajan said.