Finance minister Arun Jaitley did the right thing by making it clear that the government respects the RBI’s decision on policy rates, something that is within its remit to set, through the new mechanism of the Monetary Policy Committee (MPC) that includes three economists nominated by the government. He was also right to assert the finance ministry’s right to communicate its views to the MPC on what policy rates should be.
In the era of globalised finance and footloose capital that can shift trillions of dollars across national borders in the twinkling of an eye, fiscal and monetary policy must coordinate, to maintain macroeconomic stability. But how that coordination takes place is as important as the need for it. And this is where the MPC’s decision to assert its independence and the finance minister’s open acknowledgement of that independence serve the nation well.
via The only way to push up lending, growth is to draw on political capital
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