The Urjit Patel Committee Report

The Urjit Patel Committee Report refers to a pivotal document commissioned by the Reserve Bank of India (RBI) and chaired by Dr. Urjit Patel, who later became the Governor of the RBI. This report aims to review and restructure India’s monetary policy framework to enhance its effectiveness and align it with global best practices.

The key focus areas and recommendations of the Urjit Patel Committee Report included:

1. Transition to Inflation Targeting: The committee recommended adopting a flexible inflation targeting framework for monetary policy. It suggested setting a medium-term inflation target, typically around 4%, with a tolerance band, aiming to bring greater transparency and credibility to the RBI’s policy actions.

2. Monetary Policy Committee (MPC): The report proposed establishing an MPC as a statutory body responsible for setting the policy interest rate (repo rate). The committee would comprise both RBI members and independent external members, working collectively to make decisions on interest rates based on specified inflation targets.

3. Single Mandate for RBI: It recommended a single objective for the RBI—price stability, primarily focusing on controlling inflation within the specified target range. This shift aimed to ensure clarity and effectiveness in pursuing the monetary policy objective.

4. Operational Independence: The committee emphasized the importance of granting greater operational independence to the RBI in formulating and implementing monetary policy. This independence would safeguard the central bank’s decision-making from external influences and political pressures.

5. Transparency and Communication: The report underscored the significance of clear communication from the RBI regarding its policy decisions, strategies, and assessment of economic conditions. Enhanced transparency aimed to improve market expectations and predictability.

6. Review of RBI’s Policy Instruments: It suggested a review and potential modification of the RBI’s policy instruments and operating procedures to align them with the new inflation targeting framework.

The Urjit Patel Committee Report laid the groundwork for significant changes in India’s monetary policy framework, particularly the adoption of flexible inflation targeting and the establishment of the Monetary Policy Committee. These recommendations aimed to enhance the effectiveness, transparency, and credibility of India’s monetary policy in line with global best practices. Many of these recommendations were subsequently implemented, contributing to the evolution of India’s monetary policy regime.