The government has appointed three academics - Indian Statistical Institute professor Chetan Ghate, Delhi School of Economics director Pami Dua and Ravindra H Dholakia of IIM-Ahmedabad - as members on interest-rate setting Monetary Policy Committee.
The Appointments Committee of the Cabinet (ACC) cleared the three eminent experts as members on the MPC for a period of four years, a government notice said.
The committee will also have Reserve Bank of India (RBI) officials as its members and will set the benchmark interest rate in the upcoming monetary policy review with a view to contain retail inflation at the targeted level of 4 per cent.
RBI governor Urjit Patel, deputy governor and in charge of the monetary policy R. Gandhi, and executive director Michael Patra will serve as the other members of the MPC.
Ghate was part of a five-member technical advisory committee that provided advice on interest rates to the RBI Governor ahead of each policy review.
RBI's fourth bi-monthly monetary policy review for 2016-17 is scheduled on October 4, and interest rate decision is expected to be taken by the panel instead of the current practice of RBI Governor alone.
The MPC was set up by amending the Reserve Bank of India Act, 1934, through the Finance Act 2016.
The MPC will work with regard to setting up interest rate to meet the inflation target fixed by the government.
Under the agreement with the government, RBI is committed to anchoring retail inflation at 4 per cent (plus/minus 2 per cent) and has set itself a target of 5 per cent by next March as part of a 'glide path' to achieving the median mark.
As per the norms for MPC, each member shall have one vote and in case of a tie, the RBI Governor shall have a casting vote. Presently, the Governor has over-riding powers to accept or reject the recommendation of RBI's panel on monetary policy.
The Governor will have a casting vote once the country shifts to the panel system.
Members of the MPC will be appointed for a period of four years and shall not be eligible for reappointment.
The idea of setting up an MPC was mooted by an RBI-appointed committee led by then deputy governor Urjit Patel in February 2014. Though it had recommended a five-member committee where three members would be from RBI and two external members would be appointed by the RBI governor and the deputy governor in-charge.
It was also suggested that the governor should have a casting vote in case of a tie.
(With PTI inputs)