Policy needs diversity
India has made a significant shift from a governor-centric decision-making model to a more collaborative approach via MPC, mirroring global trends since the late 1990s. Based on Urjit Patel committee's recommendation, MPC was formed in 2016. It has three internal members from RBI and three external members from academia. This collegial structure, while intended to foster balanced decision-making, has revealed an interesting dynamic: discord among committee members.
As seen, external MPC members often vary from the majority's stand on policy rates, raising questions about the efficacy of this governance model. Studies in policy communications of central banks, however, have often emphasised the need to preserve and nurture an environment conducive to such frictions in a committee-based deliberative decision-making framework.
In the backdrop of MPC's imminent reconstitution, the question that has triggered discussions and debates is whether a more diverse committee, with all its internal frictions and disagreements, would be able to deliver better policy decisions. This question warrants a definitive answer now, more than ever.
To explore the issue further, we conducted an experimental study that attempts to understand the linkage between the committee's composition and the quality of decision-making by experts through a classroom experiment that mimics monetary policymaking. Using an experimental setup, graduate economics students, donning the role of professional forecasters, were asked to provide inflation and
