The Governor of Rajasthan promulgated two Ordinances amending the Code of Criminal Procedure, 1973 and Indian Penal Code, 1860 applicable in Rajasthan on September 7. The Ordinances restrain any investigation to be conducted against a judge, magistrate or public servant without prior sanction of the government. The decision to grant sanction will have to be taken within six months, failing which such sanction will be deemed to have been granted. The Ordinances also restrain any person from reporting on the individual in question until sanction for investigation is granted. Two Bills replacing these Ordinances were introduced in the Rajasthan Assembly by the state Home Minister last week, on October 23.[i] After introduction, the Bills were referred to a 15-member select committee comprising of legislators from the state Assembly, and headed by the Home Minister of Rajasthan. This blog examines the role of committees and some of the practices observed in state legislatures.
Purpose of committees in legislatures
In India, state legislatures sit for 31 days a year on an average.* Several Bills are passed within a few days of their introduction. One of the primary responsibilities of the legislature is to hold the executive accountable, and examine potential laws. Due to paucity of time, it is difficult for the members go through all the bills and discuss them in detail. To address this issue, various committees are set up in Parliament and state assemblies where smaller group of members examine Bills in detail, and allow for an informed debate in the legislature. Apart from scrutinising legislation, committees also examine budgetary allocations for various departments and other policies of the government. These mini-legislatures provide a forum for law makers to develop expertise, engage with citizens and seek inputs from stakeholders. Since these committees consist of members from different parties, they provide a platform for building consensus on various issues.
Figure 1: Average sitting days in a year (2012-16)
Sources: Website of various state assemblies as on October 30, 2017.
Types of committees
There are broadly three types of committees: (i) Financial committees: These scrutinise the expenditure of the government and recommend efficient ways of spending funds (example: Public Accounts Committee and Estimates Committee), (ii) Department-Related Standing Committees (DRSC): These scrutinise performance of departments under a ministry, (iii) Other committees: These deal with day-to-day functioning of the legislature (example: Business Advisory Committee, Papers Laid, Rules, etc.) While there are 3 financial committees and 24 department related committees in Parliament, the number of committees in state legislatures varies. For example, Kerala has 14 subject committees examining all departments, while Delhi has seven standing committees scrutinising performance of various departments. [ii],[iii] However, not all states have a provision for specific DRSCs or subject committees.
Similar to Parliament, state legislatures also have a provision to form a select committee to examine a particular legislation or a subject. Such a committee is disbanded after it presents a report with its findings or recommendations. Several Bills in states are referred to select committees. However, the practice in some state legislatures with respect to select committees deviate from those in the Parliament.
Independence of select committee from the executive
The rules in several states provide for the minister in-charge piloting the bill to be an ex-officio member of the select committee. These states include Rajasthan, Assam, Andhra Pradesh, Chhattisgarh, Telangana. Moreover, in Manipur, the rules provide for the minister to be chairman of the select committee. Note that the minister is part of the executive. His inclusion in the committee may be in conflict with the committee’s role of scrutinising the functioning of the executive.
The practice of including ministers in committees is in contrast with the protocol followed in Parliament where a minister is not part of any DRSC or select committee. As committees of the legislature hold the executive accountable, having a minister on the select committee undermines the role of legislature as an oversight mechanism. A minister, as a representative of the executive being part of such committees may impede the ability of committees to effectively hold the executive accountable.
The two Bills introduced in the Rajasthan Assembly last week were referred to a select committee headed by the Home Minister of the state. There have been several instances in other state legislatures where the minister introducing a bill was chairman of the select committee examining it. In Goa, a bill empowering the government to acquire land for development of public services is headed by the Revenue Minister of the state.[iv] Similarly, in Arunachal Pradesh, the select committee examining a bill for establishment of a university was headed by the Education Minister.[v] In Maharashtra as well, the Education Minister was chairman of the select committee scrutinising a bill granting greater autonomy to state universities.[vi] For rigorous scrutiny of legislation, it is essential that the committees are independent of the executive.
Strengthening state legislature committees [vii]
The functioning of committees in states can be strengthened in various ways. Some of these include:
(i) Examination of Bills by assembly committees: In the absence of DRSCs, most bills are passed without detailed scrutiny while some bills are occasionally referred to select committees. In Parliament, bills pertaining to a certain ministry are referred to the respective DRSCs for scrutiny. To strengthen legislatures, DRSCs must examine all bills introduced in the assembly.
(ii) Scrutiny of budgets: Several states do not have DRSCs to examine budgetary proposals. Some states like Goa, Mizoram and Arunachal Pradesh have a budget committee to examine budget proposals. Post the 14th Finance commission, there is a higher devolution of funds to state governments from the centre. With states increasingly spending more, it is necessary for them to have DRSCs that scrutinise the allocations and expenditures to various departments before they are approved by state assemblies.
*Based on the average sitting days for 18 state assemblies from 2012-2016.
[i] The Code of Criminal Procedure (Rajasthan Amendment) Bill, 2017 http://www.rajassembly.nic.in/BillsPdf/Bill39-2017.pdf;The Criminal Laws (Rajasthan Amendment) Bill, 2017 http://www.rajassembly.nic.in/BillsPdf/Bill38-2017.pdf.
[ii] List of subject committees http://niyamasabha.org/codes/comm.htm.
[iii] Delhi Legislative Assembly National Capital Territory Of Delhi Composition Of House Committees
2017 – 2018, http://delhiassembly.nic.in/Committee/Committee_2017_2018.htm.
[iv] The Goa Requisition and Acquisition of Property Bill, 2017 http://www.goavidhansabha.gov.in/uploads/bills/468_draft_BN18OF2017-AI-REQUI.pdf.
[v] The Kameng Professional and Technical University Arunachal Pradesh Bill 2017 http://www.assamtribune.com/scripts/detailsnew.asp?id=oct1717/oth057.
[vi] Maharashtra Public Universities Bill, 2016 http://mls.org.in/pdf/university_bill_english.pdf.
[vii] Strengthening State Legislatures http://www.prsindia.org/uploads/media/Conference%202016/Strengthening%20State%20Legislatur
The Monetary Policy Committee (MPC) has decided to conduct an off-cycle meeting today to discuss the failure to meet the inflation target under Section 45ZN of the Reserve Bank of India Act, 1934. As per the Reserve Bank of India Act (RBI), 1934, MPC is required to meet at least four times each year, to discuss the macroeconomic issues in the country, and take policy decisions to address those. This is the second time MPC has conducted an off-cycle meeting in 2022-23. The meeting is scheduled in light of inflation being consistently high for nine consecutive months.
In this blog, we discuss what the inflation targeting framework is, examine retail and wholesale prices, and the divergence between them.
What is the inflation targeting framework, and what happens if inflation is persistently high?
In 2016, Parliament amended the RBI Act, 1934 to change the monetary policy, and introduce an inflation targeting framework. This framework prioritises price stability to achieve sustainable GDP growth. Price stability allows investors to confidently invest their money for productive activities, without worrying about it losing value. Price stability also maintains the purchasing power of consumers, i.e., the ability to purchase a good (or service) with a given amount of money.
As per the new framework, the central government, in consultation with RBI sets: (i) an inflation target, and (ii) an upper and lower tolerance level for retail inflation. The target has been set at 4%, with an upper tolerance limit of 6% and a lower tolerance limit of 2%. The upper and lower limits indicate that although it is desirable for inflation to be close to 4%, deviation between these limits is acceptable. The target and bands are revised every five years. In March 2021, the existing targets were carried forward.
Retail inflation has been above 6% for the past nine months, and it has been above 4% from October 2019 onwards (See Figure 1).
Figure 1: Consumer price index (year-on-year; in percentage)
Sources: Database on Indian Economy, Reserve Bank of India; PRS.
If inflation is above or below the prescribed limits for three quarters, RBI must submit a report to the central government explaining why prices have been rising (or falling) persistently, what will be done to correct that, and an estimate as to when the target will be achieved.
The MPC uses tools such as interest rates to control the level of inflation in the economy. One such rate is the policy repo rate, which is the rate at which RBI lends money to banks. An increase in the policy repo rate makes borrowing money more costly, and hence is expected to control inflation by reducing the money supply. MPC increased this rate from 4% in April 2022 to 4.4% in May 2022, to 4.9% in June 2022, to 5.4% in August 2022, and to 5.9% in September 2022.
Breaking down the Consumer Price Index and the Wholesale Price Index
Consumer Price Index (CPI) measures the general prices of goods and services such as food, clothing, and fuel over time. Retail inflation is calculated as the change in the CPI over a period of time. Goods and services such as petrol, food products, health, and education are considered for its calculation, which are assigned different weights (See Table 1). Between February 2022 and August 2022, the average annual inflation was 6.9%. The rise in prices of subcomponents of the CPI during this period is indicated in Table 2.
Table 1: Assigned weights for the calculation of CPI
Sources: MOSPI; PRS.
Table 2: Average inflation of some CPI components
Sources: Database on Indian Economy, RBI; PRS.
CPI is not the only index that measures inflation in an economy. The Wholesale Price Index (WPI) measures the wholesale prices of goods. A change in wholesale prices reflects wholesale inflation. Table 3 indicates the weights assigned to goods for calculating the WPI. Manufactured goods include metals, chemicals, food products, and textiles.
Primary articles (23%) include food articles, and crude petroleum and natural gas. Fuel and power (12%) include mineral oils, electricity, and coal. WPI has remained above 10% from April 2021 onwards. It reached an all-time high of 17% in May 2022. This was driven by the inflation in metals, kerosene and petroleum coke, fruits and vegetables, and palm oil.
Table 3:Assigned weights for the
Sources: Ministry of Commerce and Industry; PRS.
Why has WPI inflation been consistently above CPI inflation?
Movements in the WPI have an impact on the CPI. For almost a year and half, CPI inflation has remained below WPI inflation. However, as per the design of the indices, it is expected that CPI would remain above WPI, and that any increase in WPI would reflect in the CPI after a time lag. This is because retail prices include taxes (as a percentage of price), while wholesale prices do not. Additionally, some of the goods in WPI act as inputs in the goods considered in CPI. An increase in input prices would lead to higher retail prices after a time lag.
We discuss possible reasons for why CPI has remained below WPI for a year and a half.
Figure 2: Consumer Price Index and Wholesale Price Index
Sources: Database on Indian Economy, Reserve Bank of India; PRS.
Composition of indices
As indicated in Table 2 and 3, the composition of the two indices varies. For instance, prices of manufacture of basic metals, chemicals, and machinery grew at an average rate of 13% between February 2021 and September 2022. They contribute 7% to the WPI. These are input goods for producing final goods and services such as automobiles, which are included in the CPI. The rise in prices of transport vehicles, communication devices, fuel for transport, and housing (CPI components) rose by 6% during this period.
The Ministry of Finance has observed that wholesale prices did not feed into retail prices (from March 2021 onwards) as wholesalers absorbed the rising input costs and did not pass them on to retailers. In August 2022, it noted that as retail prices are rising now, the pass-through may occur.