Moneylife: RBI: Time to initiate changes from within?
RBI: Time to initiate changes from within?*
The decision of Dr Raghuram Rajan not to continue or seek second
term as governor of Reserve Bank of India (RBI) has finally ended months of
speculations. However, at the same time, the way this issue was being kept
alive through media, brings some other important issue of reforms within the
central bank, especially the casual approach in appointing the top
executives.
We should better use this opportunity to go deeper into the
legacy of the RBI, which has made its top management vulnerable to public criticism.
It is time we had a re-look at our own casual approach to employment at top
level, especially in organisations like RBI.
Allow me to quote a paragraph from Sir Thomas Munro’s 31
December 1824 observations appearing in East India Papers (Vol iii, London
1826, quoted in Economic History of India, Romesh Dutt, CIE) to open the
discussion:
“Even if we could suppose that it were
practicable without the aid of a single native to conduct the whole affairs of
the country both in the higher and in all the subordinate offices, by means of
Europeans, it ought not to be done, because it would be both politically and
morally wrong. The great number of public offices in which the natives are
employed is one of the strongest causes of their attachment to our Government.
In proportion as we exclude them from these, we lose our hold on them, and were
the exclusion entire, we should have their hatred in place of their attachment,
their feelings would be communicated to the whole population, and to the native
troops, and would excite a spirit of discontent too powerful for us to subdue
or resist. But were it possible that they could submit silently and without
opposition, the case would be worse, they would sink in character, they would
lose the hope of public office and distinction all laudable ambition, and would
degenerate into an indolent and abject race, incapable of any higher pursuit
than the mere gratification of their appetites. It would certainly be more
desirable that we should be expelled from the country altogether, than that the
result of our system of government should be such a debasement of a whole
people.”
I found the above thoughts relevant in the context of the
treatment meted out to the staff of India’s central bank since its
establishment on 1 April 1935 till date. At the time of establishment, the
ruling British government did have vested interest in ensuring that the top
management of RBI ‘obeyed’ the government. The constitution of the Bank’s
central board and appointment of RBI Governor and his deputies took care of
this objective. “Natives prohibited” approach in decision-making can be traced
to this need. The irony is, even today, it is ensured that only two of the five
top positions in RBI, including governor and four deputy governors, are held by
those who joined the bank at lower levels. This top management is dependent on
the team of executive directors (now their number is in two digits!) who are
career central bankers with over 20 years of professional central banking
experience with exposure to several work areas including trainings abroad.
All governors, without exception, have imbibed the institutional
culture once they entered the sanctum sanctorum and have tried to protect the
mandate contained in the preamble of the RBI Act 1934.
RBI, as an institution, has accepted external leadership at the
top and for the RBI family, the presence of three to four 'outsiders' as
Governor and his deputies was a matter of pride and confidence. These birds of
passage have benefited by their stay at Mint Road, as much as the institution
has gained from their leadership and guidance.
It may not be possible to change things overnight. Nevertheless,
the need for change has to be understood. There is a practical side to the
issue. In RBI, very few came as deputy governors at a young age and became
governor later. Even the average incumbency of governors is low. Dr Rajan is
the 23rd RBI governor and the institution has been in existence only for the
last 81 years, making average stay less than four years. RBI, in a way, becomes
a training establishment of sorts for top central banking professionals whose
subsequent service is not available for the institution. Three things can be
done to improve the situation:
·
Fairly good number of officers is being recruited at the second
level of officers’ grade in RBI every year. By offering a reasonably
market-related remuneration package, RBI can afford to recruit better talent at
this level who, over time, can aspire to go to top positions.
·
Offer better terms for the positions of executive directors and
above and, if necessary by increasing the number, keep some of these positions
open for ‘direct’ recruitment from the open market including from officers at
lower levels from within the bank. This will improve the availability of
internal talent for higher positions.
·
Gradually, change the age profile of deputy governors, so that
some of them can migrate to the highest level.
*Article published @moneylife.in on June 21, 2016
(MG Warrier is a former General Manager, Reserve Bank of
India and author of the 2014 book “Banking, Reforms & Corruption:
Development Issues in 21st Century India".)
Comments