Question map
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 :
Explanation
The correct answer is option A – only statement 1 is correct.
From 2016, the MPC reviews and fixes the benchmark policy rate (repo rate) which is required to contain inflation within the specified target level.[1] MPC has the authority to decide the repo rate only and not reverse repo, CRR, SLR etc.[2] Therefore, statement 1 is correct.
Statement 2 is incorrect on both counts. MPC has 6 members, three from RBI (including the RBI Governor) and 3 appointed by the Government of India.[2] Additionally, the three external members hold office for 4 years and are not eligible for re-appointment,[3] so it is not reconstituted every year.
Statement 3 is also incorrect. RBI Governor is the ex-officio Chairperson of MPC,[3] not the Union Finance Minister. Therefore, only statement 1 is correct, making option A the right answer.
Sources- [1] Indian Economy, Nitin Singhania .(ed 2nd 2021-22) > Chapter 7: Money and Banking > MONETARY POLICY COMMITTEE > p. 172
- [2] Indian Economy, Vivek Singh (7th ed. 2023-24) > Chapter 2: Money and Banking- Part I > 2.13 Monetary Policy > p. 60
- [3] Indian Economy, Nitin Singhania .(ed 2nd 2021-22) > Chapter 7: Money and Banking > Composition of MPC > p. 173
PROVENANCE & STUDY PATTERN
Full viewThis is a classic 'Sitter' disguised as a technical question. It stems directly from the 2016 amendment to the RBI Act, which was a major current affairs headline. If you read any standard Economy material (Singhania or Vivek Singh) or followed the news, the composition (6 members) and Chair (RBI Governor) are non-negotiable basics.
This question can be broken into the following sub-statements. Tap a statement sentence to jump into its detailed analysis.
- Statement 1: Does the Monetary Policy Committee (MPC) of India decide the Reserve Bank of India's benchmark interest rates such as the repo rate?
- Statement 2: Is the Monetary Policy Committee (MPC) of India a 12-member body?
- Statement 3: Does the Monetary Policy Committee (MPC) of India include the Governor of the Reserve Bank of India as a member?
- Statement 4: Is the Monetary Policy Committee (MPC) of India reconstituted every year?
- Statement 5: Does the Monetary Policy Committee (MPC) of India function under the chairmanship of the Union Finance Minister?
- Explicitly states that from 2016 the MPC reviews and fixes the benchmark policy rate (repo rate).
- Contrasts earlier practice (Governor with advisory committee) with post-2016 MPC authority, directly attributing repo-rate decisions to MPC.
- Says the decision of the MPC is binding on RBI, indicating MPC's determinations must be followed by the central bank.
- Specifically notes MPC 'has the authority to decide the repo rate only', directly confirming MPC's power over the repo rate.
- Defines the repo rate as the 'Policy Rate' used by the RBI—clarifies what is meant by 'benchmark interest rate'.
- Helps link the MPC's decision-making (per other snippets) to the key policy instrument used by RBI.
Explicitly describes the composition of the MPC as 'out of the total six members' and details 3 from RBI and 3 nominated by GOI.
A student could use this explicit composition to infer that a 12-member claim conflicts with multiple-textbook descriptions and therefore warrants verification against official sources.
States 'MPC has 6 members, three from RBI (including the RBI Governor) and 3 appointed by the Government of India' and describes voting rules.
Combine this with common knowledge that composition is a small committee (bi‑monthly meetings) to judge that a 12‑member size is unlikely and should be checked.
Presents a multiple‑choice question item that includes the proposition 'It is a 12-member body' as one of the statements to be judged, implying that the 12‑member claim is a known (contestable) assertion in study materials.
Use this to suspect that 12 members is a distractor/incorrect option in exam prep and cross‑check with authoritative composition statements.
Explains that the MPC was created by amending the RBI Act (2016) to institutionalise inflation‑targeting, giving context that the committee has a statutory framework where composition is defined.
A student could consult the RBI Act/amendment text (basic external step) to confirm the statutory number of members rather than accept a 12‑member assertion.
- Explicitly states MPC has 6 members, three from RBI (including the RBI Governor).
- Directly names the RBI Governor as one of the RBI-appointed members of the MPC.
- Specifies the three RBI members are: Governor, one Deputy Governor, and one RBI-nominated official.
- States the RBI Governor is the ex‑officio Chairperson of the MPC, confirming formal membership.
Contains a multiple-choice question that asserts the MPC 'is a 12-member body... and is reconstituted every year' — showing this claim appears in exam-oriented texts as a stated fact.
A student could treat this as a hypothesis to verify by checking the statutory provisions or official notifications about MPC membership/tenure.
Explains the statutory origin of the MPC (RBI Act amendment of 2016) and its purpose — pointing to a legal framework that would specify composition and terms.
A student could consult the RBI Act amendment text or the Monetary Policy Framework Agreement to find explicit rules on member tenure/reconstitution.
States procedural details about the MPC (e.g., RBI should organize at least four MPC meetings a year) — indicating operational rules are documented and suggesting member tenure is similarly specified in authoritative sources.
Use this pattern (operational rules recorded in these sources) to look up documented tenure/reconstitution clauses in the same sources.
Describes that certain parliamentary committees have members elected 'every year' with a one-year term — providing a concrete example of Indian committees being reconstituted annually.
Compare this established annual reconstitution practice for some committees with the MPC to assess whether annual reconstitution would be typical or exceptional.
Explicitly states composition of MPC and that the RBI Governor is the ex‑officio Chairperson of the MPC (a rule about who chairs it).
A student could combine this rule with knowledge that the Union Finance Minister is not the RBI Governor to infer the Finance Minister would not chair MPC.
Describes MPC voting rules and notes the Governor has a casting/second vote, implying a leadership/decision role for the Governor.
Use the Governor's special voting privilege to support the idea that the Governor functions as MPC chair rather than an external minister.
Explains statutory basis: MPC was created by amending the RBI Act and links MPC responsibility to RBI (the monetary authority).
From the MPC being an RBI‑instituted body, infer its chair is likely from RBI (e.g., the Governor) rather than the Finance Minister.
Contains a test question listing as a proposition that MPC 'functions under the Chairmanship of the Union Finance Minister', presenting it as a claim to be judged.
A student could treat this as an example of a commonly asserted statement and then compare it against authoritative composition/Chair rules (e.g., snippet 2) to evaluate its correctness.
Shows the pattern that the Union Finance Minister chairs certain statutory/central bodies (e.g., GST Council), establishing that ministry ministers do chair some economic councils.
A student could use this pattern to note that while Finance Minister chairs some bodies, one must check the specific statutory provision for MPC (and then compare to snippet 2 which names the RBI Governor as chair).
- [THE VERDICT]: Sitter. Covered explicitly in standard texts like Nitin Singhania (Ch. 7) and Vivek Singh (Ch. 2). The '12-member' claim is a fabrication to test your confidence in the actual number (6).
- [THE CONCEPTUAL TRIGGER]: The shift from the Governor's veto power to a Committee-based voting system (Urjit Patel Committee recommendations).
- [THE HORIZONTAL EXPANSION]: Memorize the 'MPC Identity Card': 1) Strength: 6 Members (3 RBI + 3 External). 2) Chair: RBI Governor (with casting vote). 3) Tenure of External Members: 4 years (No reappointment). 4) Quorum: 4 members. 5) Target: 4% (+/- 2%). 6) Publication: Minutes released on the 14th day.
- [THE STRATEGIC METACOGNITION]: When studying any Council/Committee (GST Council, FSDC, MPC), always create a 'Who is the Boss?' table. UPSC habitually swaps the Chairperson (PM vs FM vs RBI Gov) and the member count to create easy elimination traps.
References state that from 2016 MPC reviews and fixes the repo rate and that MPC's decisions are binding on the RBI.
High-yield for policy and governance questions: explains institutional change in India’s monetary policy framework and who legally sets the policy rate. Useful for questions on central bank independence, institutional reforms, and monetary policy decision-making. Study by comparing pre-2016 and post-2016 arrangements and memorise MPC's core mandate and binding nature.
- Indian Economy, Nitin Singhania .(ed 2nd 2021-22) > Chapter 7: Money and Banking > MONETARY POLICY COMMITTEE > p. 172
- Indian Economy, Vivek Singh (7th ed. 2023-24) > Chapter 2: Money and Banking- Part I > 2.13 Monetary Policy > p. 60
Evidence labels the repo rate as the 'Policy Rate' and links it to lending-rate benchmarks, clarifying why repo is called a benchmark.
Frequently tested concept linking monetary policy tools to transmission and banking rates; helps answer questions on transmission mechanism, external benchmark lending, and policy instruments. Master definitions, role of repo in LAF/LTRO operations, and how it functions as a benchmark for bank rates.
- Indian Economy, Vivek Singh (7th ed. 2023-24) > Chapter 2: Money and Banking- Part I > The following are the major instruments/tools that RBI uses for conducting its monetary policy: > p. 61
- Indian Economy, Vivek Singh (7th ed. 2023-24) > Chapter 2: Money and Banking- Part I > MCLR > p. 92
References explain that changes in repo alter reverse repo, money-market rates and thereby bank lending rates when loans are linked to repo.
Practically useful for questions on monetary transmission, inflation management and banking regulation. Enables explanation of how policy-rate changes affect the economy and why RBI/MPC decisions matter for borrowers and markets. Prepare by linking repo movements to reverse repo, call money rates and lending-rate benchmarks.
- Indian Economy, Vivek Singh (7th ed. 2023-24) > Chapter 2: Money and Banking- Part I > MCLR > p. 92
- Indian Economy, Vivek Singh (7th ed. 2023-24) > Chapter 2: Money and Banking- Part I > Transmission of Repo Rate into Lending Rate > p. 89
Several references state the MPC consists of six members (three from RBI, three nominated by the Government), directly relating to the claim about membership size.
High-yield for prelims and mains economy sections — questions often ask MPC size and composition. Connects to topics on RBI governance and monetary policy framework. Learn by memorising official composition and contrasting common distractors (e.g., '12 members').
- Indian Economy, Nitin Singhania .(ed 2nd 2021-22) > Chapter 7: Money and Banking > Composition of MPC > p. 173
- Indian Economy, Vivek Singh (7th ed. 2023-24) > Chapter 2: Money and Banking- Part I > 2.13 Monetary Policy > p. 60
Evidence describes that three members are nominated by the Government, hold office for four years, and have eligibility restrictions — clarifies member categories and tenure.
Frequently tested details: tenure, nomination source and disqualifications appear in prelim MCQs and mains governance answers. Helps answer questions on institutional design and independence of monetary policy. Memorise key limits (4 years, non-reappointment, ineligibility of MPs/public servants).
- Indian Economy, Nitin Singhania .(ed 2nd 2021-22) > Chapter 7: Money and Banking > Composition of MPC > p. 173
Evidence states the RBI Act was amended in 2016 to create the MPC and links it to the inflation-targeting mandate, explaining why the committee exists and its responsibilities.
Important for understanding policy intent and legal framework behind MPC — useful for analytical mains answers on monetary policy, RBI-GOI relations, and institutional reforms. Study the 2016 amendment and Monetary Policy Framework Agreement to answer 'why' and 'how' questions.
- Indian Economy, Nitin Singhania .(ed 2nd 2021-22) > Chapter 7: Money and Banking > MONETARY POLICY COMMITTEE > p. 172
The evidence identifies the MPC as a six-member body with a specific split between RBI members and government-nominated external members.
High-yield for UPSC: questions often ask about institutional composition and appointment rules (numbers, RBI vs GOI nominees). Understanding composition helps answer governance and accountability questions and links to topics on central banking and monetary policy framework. Prepare by memorising member count, RBI vs GOI split, and term/eligibility rules from standard sources.
- Indian Economy, Nitin Singhania .(ed 2nd 2021-22) > Chapter 7: Money and Banking > Composition of MPC > p. 173
- Indian Economy, Vivek Singh (7th ed. 2023-24) > Chapter 2: Money and Banking- Part I > 2.13 Monetary Policy > p. 60
The Search-cum-Selection Committee. While the Government appoints the 3 external members, they are selected by a committee headed by the Cabinet Secretary, not the Finance Minister directly. Also, the MPC must meet at least 4 times a year.
Use the 'Separation of Powers' heuristic. The Finance Minister (Political Executive) controls Fiscal Policy. The RBI Governor (Technocrat) controls Monetary Policy. If the FM chaired the MPC (Statement 3), it would destroy the central bank's autonomy. Thus, Statement 3 must be false.
Connects to GS-2 (Statutory, Regulatory and various Quasi-judicial bodies) and GS-3 (Indian Economy - Monetary Policy). The MPC represents the institutional separation of 'Monetary Authority' (RBI) from 'Fiscal Authority' (Govt), preventing Fiscal Dominance.