Section B – Urjit Patel Committee

The Urjit Patel Committee was instituted with the aim of revising and fortifying the monetary policy framework in India. Here are the key perspectives, concepts, and recommendations posited by the committee.

1. Focus on Exchange Rate:
   • The committee highlighted the importance of managing the exchange rate to ensure it reflects economic fundamentals, which can help in attracting foreign investment and stabilizing the econom​y.
2. Focus on Multiple Indicators:
   • Rather than relying on a single indicator, the committee suggested that multiple indicators should be used to derive a more accurate understanding of the economic situation, which in turn would help in formulating better monetary polici​es.
3. Focus on Inflation:
   • The committee emphasized on controlling inflation as a paramount objective. They proposed a shift to the Consumer Price Index (CPI) as the main measure for inflation targeting, moving away from the Wholesale Price Index.
4. Nominal Anchor (CPI) Method:
   • Adopting the Nominal Anchor method using CPI, with a target of keeping inflation at 4%, within a tolerance band of +/- 2%. This was aimed at providing a clear and transparent framework for monetary policy operations, which would help in managing inflation expectations.
5. Inflation Targeting Framework:
   • They recommended a flexible inflation targeting framework to maintain a targeted range for inflation, which would help in stabilizing prices and, in turn, the ec​⁴​urce.
6. Monetary Policy Committee (MPC):
   • Establishing a Monetary Policy Committee (MPC) headed by the Governor for better decision-making in monetary policy. This would help in bringing a more structured and collaborative approach to monetary policy formulation and implemen​t.
7. Bi-monthly Monetary Policy Cycle & Other Reforms:
   • Transitioning to a bi-monthly monetary policy cycle, reducing access to overnight liquidity under the LAF, and other reforms were suggested to make the monetary policy framework more robust and responsive to economic ​​source.

Impact of Urjit Patel Committee

The Urjit Patel Committee’s recommendations had several impactful implications on India’s monetary policy framework and the broader economy. Here’s a breakdown of the key impacts, illustrated with emojis for enhanced understanding:

1. Establishment of Monetary Policy Committee (MPC):
   • The establishment of the MPC brought a more structured and collaborative approach to monetary policy formulation and implementation. This committee helps in maintaining a balance between addressing inflation and supporting economic growth, ensuring that a variety of perspectives are considered in policy decision​.
2. Transition to Consumer Price Index (CPI):
   • The shift to using CPI as the primary measure for inflation targeting was a significant change that provided a more accurate reflection of the cost of living and inflationary pressures faced by the average consumer, as opposed to the previous reliance on the Wholesale Price Index.
3. Inflation Targeting Framework:
   • The adoption of a flexible inflation targeting framework, with a goal of achieving a 4% CPI inflation rate within a tolerance band of +/- 2%, provided clear and transparent targets for managing inflation. This helped in stabilizing prices and managing inflation expectations effectiv​ce.
4. Bi-monthly Monetary Policy Review Cycle:
   • Transitioning to a bi-monthly monetary policy review cycle allowed for more timely responses to economic changes, enhancing the effectiveness and relevance of monetary policy decis​ion.
5. Enhanced Transparency and Accountability:
   • The reforms advocated by the committee brought about greater transparency and accountability in monetary policy operations, helping to build trust and understanding among the public and market participants.
6. Improved Exchange Rate Management:
   • The focus on better exchange rate management helped in stabilizing the currency, attracting foreign investment, and enhancing India’s economic.
7. Modernization of Monetary Policy:
   • The recommendations of the committee contributed to the modernization of India’s monetary policy framework, aligning it more closely with global best practices.
8. Improved Monetary Policy Communication:
   • The structured framework and clear inflation targets improved communication between the central bank and the market, aiding in better anticipation and reaction to monetary policy decisions.

These impacts signify a substantial advancement in the evolution of India’s monetary policy framework, helping to create a more stable and transparent environment for economic management and growth. Through these reforms, the Urjit Patel Committee laid the groundwork for a more robust and effective monetary policy regime in India.

In recent years, several committees have been constituted in India to address various facets of the money market, banking finance, and currency circulation. Here are some of the committees and their focus areas:

1. Committee on Currency Movement: The Reserve Bank of India (RBI) directed banks to ensure their ATMs are secured to a structure, like a wall, pillar, or floor, by 30 September 2019, to enhance the security of cash vending machines​¹​.
2. S. Chakravarty Committee and Narsimham Committee: These committees played a significant role in money market reforms, which helped unlock India’s banking potential and elevate financial institutions to international standards​²​.
3. Various Committees: There’s a long list of committees focusing on different areas of banking and finance, such as the A.C. Shah Committee on Non-Banking Financial Companies (NBFC), the Narasimham Committee on financial system reforms, the Rangarajan Committee on computerization of the banking industry, and many more. These committees have looked into a myriad of issues including frauds & malpractices in banks, development of capital markets, agricultural credit delivery, and non-performing assets of banks among others​³​.
4. Banking Sector Reforms Committees: Some committees like the Narasimham Committee and the UK Sharma Committee focused on reforms related to the banking sector and the role of the National Bank for Agriculture and Rural Development (NABARD) in Regional Rural Banks (RRB) respectively​⁴​.

These committees, with their respective focus areas, work towards addressing challenges and improving the financial and economic framework in India. Through their recommendations, they aim at bettering the money market, banking sector, and the circulation of money, thereby contributing to the broader economic growth and stability of the country.

The recommendations by the Urjit Patel Committee provided a structured framework for managing monetary policy in India, with a significant focus on inflation control, which is crucial for economic stability and growth. The shift towards using CPI as the primary measure for inflation targeting and the establishment of the MPC were among the critical reforms suggested to enhance the efficacy of monetary policy in addressing economic challenges.