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In the minutes of the first Monetary Policy Committee (MPC) released on Tuesday, one of the six members is quoted as saying that the risks to inflation arising out of the implementation of the recommendations of the 7th Central Pay Commission are "largely statistical." A police officer stands guard in front of the Reserve Bank of India (RBI) head office in Mumbai, India, August 9, 2016.Reuters file

The first meeting of the newly-formed Monetary Policy Committee (MPC) seemed to differ from the views expressed by former Reserve Bank of India (RBI) governor Raghuram Rajan on risks to inflation as a result of 7th Central Pay Commission (CPC) recommendations. While he had cautioned upside risks to inflation, one of the government-nominated members of the MPC had a contrarian view about it.

On Tuesday, (October 18), the RBI released the minutes of the MPC meeting held on October 3 and 4.

"Some of the upside risks to inflation discussed in the MPC meeting on October 3 and 4, 2016, particularly arising out of the award of the 7th Pay Commission, are largely statistical according to me. Looking forward, in my opinion, the probability of inflation turning up from the current level is reasonably less," Ravindra H. Dholakia said, according to the minutes of the MPC meeting.

This is in variance to the view held by Rajan till his monetary policy meeting held in August.

"Risks to the inflation target of 5 per cent for March 2017 continue to be on the upside...the full implementation of the recommendations of the 7th central pay commission (CPC) on allowances will affect the magnitude of the direct effect of house rents on the CPI. On balance, inflation projections as given in the June bi-monthly statement, i.e. of a central trajectory towards 5 per cent by March 2017 with risks tilted to the upside, are retained," according to the policy statement released on August 9.

The members of the MPC are RBI governor Urjit Patel, RBI deputy R Gandhi, ED of RBI Michael Debabrata Patra and three government nominees — Chetan Ghate, Professor, Indian Statistical Institute; Dr. Pami Dua, Director, Delhi School of Economics; and Dr. Ravindra H. Dholakia, Professor, Indian Institute of Management, Ahmedabad.

The recommendations of the 7th CPC in totality entail an outgo of about Rs 102,100 crore during the current fiscal. The overall hike proposed by the pay panel, covering salary and allowances, is 23.55 percent.

The additional amount on account of hike in HRA and other allowances is about Rs 29,300 crore (Rs 17,200 crore + Rs 12,100 crore) during the current fiscal, as estimated by the 7th CPC. It has proposed 138.71 per cent hike in HRA and 49.79 per cent for other allowances.

The Central government is yet to decide on accepting the hike in allowances while the hike in salary component was approved by the Union Cabinet on June 29, 2016.

The recommendations of the 7th CPC cover 47 lakh Central government employees and 53 lakh pensioners, of which 14 lakh employees and 18 lakh pensioners are from the defence forces.