Urjit Patel Committee

The Urjit Patel Committee, formally known as the Expert Committee to Revise and Strengthen the Monetary Policy Framework, was constituted to reform India’s monetary policy architecture and enhance the effectiveness, transparency, and credibility of monetary policy formulation. Chaired by Urjit Patel, the committee’s recommendations marked a structural shift in how inflation, interest rates, and monetary stability are managed in India. Its work has had a lasting impact on banking operations, financial markets, and the broader Indian economy.
The committee’s recommendations laid the foundation for modern inflation targeting in India and redefined the institutional framework of monetary policy decision-making.

Background and Rationale for the Committee

Prior to the formation of the Urjit Patel Committee, India’s monetary policy framework was characterised by multiple and sometimes conflicting objectives, including growth, inflation control, and exchange rate stability. This multi-indicator approach often reduced policy clarity and weakened the signalling role of interest rates.
Persistently high and volatile inflation during the late 2000s and early 2010s highlighted the need for a clear nominal anchor. In this context, the Reserve Bank of India, in consultation with the Government of India, constituted the Urjit Patel Committee in 2013 to recommend reforms aimed at improving macroeconomic stability and strengthening monetary policy transmission.

Objectives and Mandate

The primary mandate of the Urjit Patel Committee was to propose a revised monetary policy framework that would ensure price stability while supporting economic growth. The committee was tasked with identifying a suitable nominal anchor for monetary policy and suggesting institutional mechanisms to enhance credibility and accountability.
A key focus was to design a framework that could anchor inflation expectations, reduce uncertainty, and improve coordination between monetary and fiscal policy.

Key Recommendations of the Committee

The most significant recommendation of the Urjit Patel Committee was the adoption of flexible inflation targeting as the core of India’s monetary policy framework. The committee proposed that consumer price index (CPI) inflation should serve as the nominal anchor for policy decisions.
Major recommendations included:

• Adoption of CPI inflation as the primary measure of price stability.
• Setting a medium-term inflation target of 4 per cent, with a tolerance band.
• Establishment of a Monetary Policy Committee (MPC) to decide policy rates.
• Clear separation between monetary policy objectives and other functions of the central bank.

These recommendations aimed to improve policy predictability and strengthen the credibility of the central bank.

Monetary Policy Committee and Institutional Reform

One of the most transformative outcomes of the committee’s work was the creation of the Monetary Policy Committee. The MPC introduced a rule-based, committee-driven approach to interest rate decisions, replacing the earlier discretionary system dominated by the central bank governor.
The committee-based structure enhanced transparency by requiring published resolutions, voting patterns, and rationales for decisions. This institutional reform improved accountability and aligned India’s monetary policy framework with global best practices.

Implications for the Banking Sector

The Urjit Patel Committee’s recommendations had significant implications for banks. A clear inflation target improved the predictability of interest rate movements, enabling banks to price loans and deposits more efficiently.
Improved monetary transmission strengthened the link between policy rates and lending rates, influencing credit growth, asset–liability management, and risk assessment within banks. Over time, this contributed to a more responsive and stable banking system.

Impact on Financial Markets

Financial markets benefited from clearer policy signalling and reduced uncertainty. Bond yields, interest rate derivatives, and currency markets became more sensitive to inflation data and MPC communications.
The credibility of inflation targeting helped anchor long-term inflation expectations, reducing risk premiums and improving the efficiency of capital allocation across the economy.

Macroeconomic Significance for the Indian Economy

At the macroeconomic level, the Urjit Patel Committee’s framework contributed to improved price stability, which is critical for sustainable economic growth. Lower and more stable inflation protects purchasing power, encourages savings, and supports investment planning.
The framework also improved coordination between fiscal and monetary policy by clearly assigning responsibility for inflation control to the central bank. This clarity strengthened overall macroeconomic governance and enhanced India’s economic resilience.