Moody's Analytics, an economic research unit of Moody's Corp, also raised a red flag over the Parliament logjam and said it is denting business confidence as key reform bills like land and GST are stuck. A revised draft of the Indian Financial Code calls for creation of an interest rate-setting panel, where majority of the seven members will be nominated by the government. While the earlier version of the code gave RBI Governor veto power over panel's decision, the revised draft does not confer any such powers on him.

"We believe that a government-elected panel undermines the RBI’s independence. Moving to the new model would severely dent the RBI's competency- Credibility would be lower, politics would drive decisions, and transparency would be reduced. Overall, we believe that tampering with the central bank's independence would make it difficult to anchor inflation expectations. This would weigh on India's economic prospects, particularly financial market stability," Moody's Analytics said in a report.

It stated India's monetary policy, with Governor Raghuram Rajan at the helm, has been effective. The report titled-- India's Outlook- Waiting for Reforms to Fuel Growth-- said inflation has fallen, external accounts have improved, and the economy is poised for further rate cuts.

Terming the measure as a 'dangerous road ahead', it said "A recent draft bill could undo the RBI’s good work." It, however, hoped that given the criticism of the draft Indian Financial Code Bill, it is unlikely to pass Parliament.

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