UPSC Prelims 2017 · Question 86 of 99
UPSC Prelims 2017 question on Monetary Policy Committee
- ExamUPSC CSE
- Year2017
- PaperGeneral Studies Paper I
- SubjectIndian Economy
- TopicMoney Market
- DifficultyMedium
- TypeStatement
Which of the following statements is/are correct regarding the ‘Monetary Policy Committee (MPC)’?
1. It decides the RBI’s benchmark interest rates.
2. It is a 12-member body including the Governor of RBI and is reconstituted every year.
3. It functions under the chairmanship of the Union Finance Minister.
Select the correct answer using the code given below:
Show answer
Answer: A. 1 only
Verdict
The answer is 1 only. The Monetary Policy Committee decides the benchmark rate, but it is a six member body and is not chaired by the Finance Minister.
Analysis
Statement 1 is CORRECT. The Reserve Bank of India Act was amended by the Finance Act, 2016 to create a statutory Monetary Policy Committee entrusted with fixing the benchmark policy rate required to contain inflation within the specified target. Statement 2 is INCORRECT. The Committee has six members, three from the Reserve Bank and three appointed by the Central Government, and it is not reconstituted every year. Statement 3 is INCORRECT. It functions under the chairmanship of the Governor of the Reserve Bank, who also holds a casting vote.
Source
Press Information Bureau release on the Monetary Policy Committee.
How to crack it
Statement 3 fails on the principle of central bank independence, since a monetary authority chaired by the Finance Minister would defeat the purpose of insulating rate setting from fiscal pressure. Ask whether a claimed arrangement would undermine the body's reason for existing, and if it would, it is almost certainly false. Then hold the composition as three plus three with the Governor chairing and holding the casting vote, which is the most tested detail.