(September 24/25, 2016, No. 40/2016)
Weekend Lighter is posted every Saturday @mgwarrier.blogspot.in
Feel free to mail your views on this edition of WL to mgwarrier@gmail.com
Under Leisure, I have included excerpts from RBI Governor Rajan’s September 3, 2016 speech in Delhi.
Special editorial
RBI Pension Scheme*
Copied below is my letter published in Business Standard, November 24,  2012:
“Make RBI whim-free: This refers to the report “New bank licences 8-9 months after enabling legislation” (November 17). If the finance ministry is confident that an amendment in the Banking Regulation Act is not necessary to give the powers sought by the Reserve Bank of India (RBI) for approving new banks, why is it not trying to convince the apex bank first? The finance minister’s statement that the ministry has “written” to RBI to start receiving applications is absurd. How can any genuine promoter apply without knowing the regulatory environment in which the new bank will function?
In October, RBI Governor D Subbarao had suggested that the powers to RBI should come through a legislative amendment. The powers given outside the provisions of the Act could contain stings, and could also be taken back in a different situation through the same process.
Statutory bodies should not be made subservient to the whims of ministry officials. RBI has faced problems on issues relating to banks earlier, owing to blurred clarity in powers and interpretation of law. Even today, a ten-year-old pension updation issue is shuttling between RBI and the finance ministry.
M G Warrier Mumbai”
A pension scheme in lieu of the then existing Contributory Provident Fund Scheme was introduced for RBI employees who were in service as on January 1, 1986. The RBI Pension Regulations, 1990 enabled periodic revision of pension and the possibility of such revision when wages of serving employees were revised from time to time was reiterated in an internal circular issued by RBI to lure more employees to opt for the pension scheme. The RBI Pension Scheme, unlike the government schemes which go by a “Pay As You Go” principle (meaning payment of pension will be dependent on current revenues), is fully funded out of receivables surrendered by pension optees and surpluses generated by discontinuance of CPF in RBI (RBI augments the fund out of its income based on actuarial valuations).
RBI is convinced about the need for periodical revision and, backed by RBI’s own Central Board decision, has been ‘engaged’ with GOI (Refer relevant observations in RBI Annual Reports 2014-15 and 2015-16) in recent years. As of now, RBI calculates pension with reference to 4 pay scales (1997, 2002, 2007 and 2012). The indecision perpetuated for decades within an institution which is responsible for monitoring the economy on an hourly basis and mandated to regulate and supervise the financial system, can become a matter of ridicule, once the gravity is understood by outsiders.
M G Warrier
*Disclaimer: M G Warrier opted for VRS from RBI as General Manager in 2003 and is RBI pensioner
Opening Remarks
RBI’s independence
This refers to the well-researched article on RBI’s independence by Dr Charan Singh (The Hindu, ‘An independent RBI is a chimera’, September 21) which presumes there has been a clamour for autonomy or independence of the Reserve bank of India(RBI) by successive RBI governors.  Once they took positions, it has to be said to the credit of all RBI Governors who were in charge during the last 25 years (Dr Y V Reddy to Dr Raghuram Rajan), that all of them understood the evolution of RBI’s role in India’s economic development and the contours within which the Indian central bank can function to achieve its monetary policy objectives.
Inside RBI, all through, the debate has been about ‘functional autonomy’ to formulate and implement monetary policy and play the role assigned to the bank in regulating and supervising the institutional system in the financial sector. The institution has been taking in its stride ( and has not yet responded in public), the teasing by North Block by trying to boss over it by interference even in the implementation of a pension scheme which is fully funded from employees’ contribution and part-financed by RBI out of funds rendered surplus on discontinuance of Contributory Provident Fund.
 Occasionally, friction between North block and Mint Road did surface when the former came out with ‘policy prescriptions’ through media without any consultation with Mint Road. The elegance with which RBI handled such situations is part of history.
Dr Y V Reddy, Deputy Governor, RBI (who subsequently became Governor) concluded the Second Foundation Day Lecture at IIM, Indore on October 3, 2001, for which he chose ‘Independence of Central banks’ as subject, with the following prophetic observation:
“In the years to come, the sheer need to improve efficiency of operations will thrust upon the RBI a greater degree of autonomy and, therefore, a greater degree of accountability. In such a milieu, it is essential that the setting of goals and the policy processes will need to evolve in a transparent manner. For the central bank, these will be difficult times but also exhilarating times.”
The prophecy has come true. Dr Raghuram Rajan, in his last public address of his three year tenure as RBI Governor, speaking at St Stephen’s College, New Delhi on September 3, 2016 had this to say:
“When the responsibilities of the RBI are fuzzy, its actions can continuously be questioned. Instead, if the constitutional authorities outline a framework for the responsibilities of the RBI, it can take actions consistent with those responsibilities and be held (responsible) to outcomes. The inflation objectives recently set for RBI by the Government are an example of what is needed. Critics can lambast the RBI if it fails continuously to meet the objectives, but if they want it to lower interest rates even when the RBI barely meets its objectives, they should instead petition the Government to change the objectives.”
Quoted the above to make the point that there is clarity of policy perspectives within RBI and this institutional clarity has been understood by successive governors who have been responsible for RBI’s monetary policy stance.
M G Warrier, Mumbai
Leaving policy to experts*
This refers to the report “Centre appoints 3 scholars to RBI monetary policy panel” (HBL, September 23). This formalises and professionalises the existing Technical Advisory Committee (TAC) which has been advising RBI Governor on crucial issues concerning monetary policy. To the extent that TAC’s advice was made known to the public, RBI has been trying to be transparent even where Governor differed from the TAC’s perceptions.  The present arrangement unburdens RBI Governor from individual responsibility in decisions on monetary policy and makes the MPC comprising experts more relevant.
The criticisms like, the possibility of MPC splitting into Team A (GOI nominees) and Team B (RBI representatives including Governor) and pressurising Governor to use the casting vote and the MPC’s suffering from imbalance of expertise as majority members happen to be professional economists should now fade out. While all the three GOI nominees are renowned economists, Governor, a Deputy Governor and an Executive Director from within RBI (one a career central banker and another a career economist, both with decades of relevant experience) will be able to provide inputs on needs and expectations of banking sector and the economy in general.
In sum, the constitution of MPC sends out a clear signal that GOI is serious about retaining RBI’s status as an expert professional body.
M G Warrier, Mumbai
*An edited (abridged) version of this response appears under Letters, The Hindu Business Line,  September 24, 2016

Recent responses
Welcome refinements*
This refers to the report “It’s the end of the line for Rail Budget” (The Hindu Business Line, September 22). It is comforting to see that Modi Government is able to think beyond economic reforms (which, any government will have to do under compulsion in the present scenario) and spare time for considering refinements in processes and procedures affecting governance which did not get the attention they deserved in the past. The reforms in the planning process, not stopping with just a change in name to NITI Aayog, the work in progress in regard to revamp in procedures of top level appointments, the debate on synchronising period of conduct of election to all levels and the change in approach to Budget Exercise now announced are all indicative of a mind-set inherited from the pre-independence legacy.
The allegation that merger of Rail Budget with the Union Budget is motivated by the possibility of grabbing  Railways’ assets and reduced allocations for Railways and the suggestion that, now Railway ministry will be jobless come from those who maintained status quo and were afraid of change. It is true that the responsibility of the finance ministry increases and initially the union budget will have to be sufficiently transparent to prove that the Railways are better off, post-merger of budgets.
Now that planning has been made a long term exercise, the annual budget exercises both at the Centre and in states gain added significance. Budget document will have to factor in not only the conventional accounting of revenue and expenditure, but will have to graduate into a more comprehensive text which will give clarity about assets and liabilities at the beginning of the year, sources and uses of funds across sectors and the role of each sector, contributing to the GDP growth or draws resources from the tax revenue, in the economic development of the country. In essence, budgets should carry the Action Plans that will realise the growth objectives.
M G Warrier, Mumbai
*Submitted version of the letter published in HBL on September 23, 2016
Time management
This refers to the report “India cannot afford a part-time Defence Minister, Congress tells Modi” (The Hindu, September 20). There is substance in the plea made by Congress spokesperson Sunil Kavthankar that ministers need to spend more time on their primary task of managing the work relating to the portfolios assigned to them. For that matter, public servants, from the President to the junior-most government employee at the village level, should give priority to their assigned work over other responsibilities either political or social. But, making a demand that they should be sitting tight in their chairs and working 24X7, doesn’t make sense. And mixing personal issues like food habits or an individual’s preferences to do extra work for one’s constituency or state dilutes the seriousness of the demand.
Stretching the argument that India’s Defence Minister should remain in Delhi all through, one may expect US President not to leave his chamber, as he is in charge of decision-making on crucial matters at any point of time. Technology has developed and these days, communicating with anyone on any corner of the world is not difficult. Still, people in responsible positions including those holding high positions in major political parties should be in a position to make themselves available for consultation in times of need, wherever they happen to be.
Perhaps, Prime Minister Modi using NITI Aayog as a forum could arrange classes on Time Management for ministers, senior level executives in government and leaders of all political parties.
M G Warrier, Mumbai
Needed, a zero-vacancy approach
This refers to the report “PM Reaches Out to CJI to Ease Judiciary-Executive Tensions” (Economic Times, September 19). If the report is true, GOI and CJI have not been giving the attention the issue of unfilled vacancies in the judiciary deserved. The rendezvous between PM and CJI did happen and they discussed pending issues is definitely a welcome sign. But, should initiation of such a gesture waited for the auspicious occasion of PM’s Birthday? The delay in making a breakthrough in filling up vacancies in the judiciary, especially at higher levels is a matter of grave concern.
As of August 12, 2016, according to media reports, while the Apex Court had a working strength of 38 against the sanctioned strength of 41, the position at lower levels was alarming. In High Courts alone 478 posts (against a sanctioned strength of 1091) of judges remained unfilled. And, across the country, 2.21 crores of cases are pending in various courts.
As new vacancies are sanctioned in government and public sector after due deliberations and most of the time, a year or two later from the initiating of processes, the existence of large number of vacancies at various levels directly mean heavy pendency of work. Judiciary’s case is not different. Government and public sector should move forward to a ‘zero-vacancy’ concept sooner than later. In such an approach, GOI may have to consider appropriate legislative measures to enable allowing retiring incumbents to continue post-retirement, on mutual consent and acceptable terms, till the successor takes over.
M G WARRIER, Mumbai 
Sub-urban transport*
This refers to the article “Managing city transport” (Business Standard, September 18) by M Ramachandran. In the short article the writer has brilliantly covered the efforts of Transport for London (TfL) to provide comfortable transport facilities in a large city like London. TfL could be a reference model for any city in the world with the only rider that transport facilities, like any other service with masses as clientele, will have to take into account the local needs, geography and economic viability while taking innovative ideas experimented elsewhere to the drawing board.
In the Indian context, TfL model which has a mix of walking, cycling and other modes of transport may perhaps suit some of the Tier II or Tier III cities. This is not because metropolitan cities in India are bigger than London. The reasons include inadequacy of space for development of infrastructure including wide roads and shortage of funds for modernisation of existing infrastructure. But such constraints should not stop us from thinking differently and modernising transport system including Railways in a big way.
Having stayed in Mumbai for the last 30 years, I am witness to the grave injustice meted out to users of suburban local trains. From tracks to signal systems, from doors of bogies to toilets in stations the whole suburban Railway infrastructure in Mumbai is awaiting modernisation. Travel discipline, from entry to platform to exit is conspicuous by its absence. Overcrowded compartments (including First Class and Ladies Compartments) are inaccessible during peak hours for Railway Officials for any checking. Many accidents are caused by passengers trying to enter or get out of moving trains. While Metros and new airports get priority, safety and comfort in the suburban locals, which are used by millions of workers everyday, are totally neglected.
M G Warrier, Mumbai
*Submitted version of letter published in BS on September 20, 2016
Obstructing governance
This refers to the report “Delhi govt. to restart minimum wage talks” (The Hindu, September 18). This is another instance where the relationship issues between Delhi Lieutenant Governor(LG) Najeeb Jung and AAP has stalled a measure which would have benefited several workers in the unorganised sector in the state of Delhi. The pro-corporate stance of the LG is coming to the fore. It is unfortunate that a progressive measure like revision of minimum wage is getting sandwiched between the egos of an individual and a political leadership. If LG is acting under pressure from above, it will further strengthen the case of incumbent Chief Minister Kejriwal who is demanding full-fledged statehood for Delhi.
Centre should, in the prevailing circumstances, appoint a more competent person as Delhi LG who will act as a buffer between the state government and the Centre by being impartial and convincing while carrying out his constitutional responsibilities. The perennial hindrance being caused to governance being caused by Najeeb Jung belittles the image of the post he holds.
M G Warrier, Mumbai
Wage issues*
This refers to your editorial “The minimum wage temptation” (Business Standard, Weekend ruminations, September 17). By coincidence, the report “Proxy advisory company finds Sun’s pay cheque for Kavery Kalanithi ‘excessive’” appeared in Business Standard on the same day.
The concern expressed about high level of wages affecting cultivation (not just paddy, it affects entire farm and plantation sectors) in Kerala is real. Kerala’s dependence on ‘less fortunate’ states for workers and the possibility of such workers outnumbering the Non-Resident Keralites (NRKs) are issues being discussed in that state. As regards protection of environment or the damage caused by wetland to dryland, these issues get exaggerated by certain constituencies for different purposes. If existing laws get implemented, Kerala will be environmentally safe for decades to come. Kerala’s environment protection problems are more related to management of the state’s forests and rivers than paddy fields and plantation crops. Taking necessary measures to prevent the damage to ecosystems and ‘natural drainage systems’ should be made the sole responsibility of those who develop land for commercial purposes. While land is parcelled off to builders and corporates, government retains the responsibility of inhabitants and drainage/environment protection which should at least be shared by those who use the land for commercial purposes.
Coming to the report on excessive remuneration siphoned off by some in private sector, time is running out for government to have a comprehensive review of wages, income and prices policy. There is no doubt that excessive regulation will stifle economic growth. But where corporates, or for that matter citizens, refuse to be guided by some socially acceptable norms and impose some self-regulation in profit-sharing and remuneration practices, government will have to enforce guidelines on remuneration and use of surplus incomes irrespective of whether the malpractices observed are in public sector or private sector as both the sectors depend on ‘public funds’ or common man’s savings for resources.
M G Warrier, Mumbai
*Submitted version of letter published in BS on September 19, 2016
Top empty
This refers to Manojit Saha’s report “Urjit Patel stares at Half-empty RBI board” (The Hindu, September 14). GOI’s approach to filling top level vacancies gives an impression that those responsible for ‘pushing files’ to ensure timely filling up of vacancies on boards and at the top executive levels are under pressure to delay things. Political leadership seems to be uncomfortable with strong leadership in statutory bodies and PSUs (including PSBs). The possible reason being the easy manoeuvrability in times of need when there are only those holding ‘additional charge’ or people who want to make sure of their next assignment at the top of important institutions.  Such an approach has destroyed institutions like Unit Trust of India.
Coming to the limited issue of vacancies on the central and local boards of RBI and the unfilled top positions in RBI and PSBs, it is in the national interest to think of a ‘zero vacancy approach’ for positions of Eds and above. The approach will need a decision to allow incumbent to continue in position till the successor takes  over, except in exceptional situations where a position becomes vacant due to death or punishment. Tenure of all such positions should be made 5 years or above which can be made possible by changing retirement age, where necessary.
M G Warrier, Mumbai
This is what Raghuram Rajan said at St Stephen’s College, New Delhi on September 3, 2016:
“How does the RBI generate surplus profits? We, of course, print the currency held by the public, as well as issue deposits (i.e. reserves) to commercial banks. Those are our fixed liabilities. As we issue these liabilities, we buy financial assets from the market. We do not pay interest on our liabilities. However the financial assets we hold, typically domestic and foreign government bonds, do pay interest. So we generate a large net interest income simply because we pay nothing on virtually all our liabilities. Our total costs, largely for currency printing and banker commissions, amount to only about 1/7th of our total net interest income. So we earn a large surplus profit because of the RBI’s role as the manager of the country’s currency. This belongs entirely to the country’s citizens. 3 Therefore, after setting aside what is needed to be retained as equity capital to maintain the creditworthiness of the RBI, the RBI Board pays out the remaining surplus to the RBI’s owner, the Government. The RBI Board has decided it wants the RBI to have an international AAA rating so that RBI can undertake international transactions easily, even when the Government is in perceived difficulty – in the midst of the Taper Tantrum, no bank questioned our ability to deliver on the FCNR(B) swaps, even though the liability could have been tens of thousands of crores. Based on sophisticated risk analysis by the RBI’s staff, the Board has decided in the last three years that the RBI’s equity position, currently around 10 lakh crores, is enough for the purpose. It therefore has paid out the entire surplus generated to the Government, amounting to about Rs 66,000 crores each in the last two years, without holding anything back. This is of the order of magnitude of the dividends paid by the entire public sector to the Government. In my three years at the RBI, we have paid almost as much dividend to the government as in the entire previous decade. Yet some suggest we should pay more, a special dividend over and above the surplus we generate. Even if it were legally possible to pay unrealized surplus (it is not), and even if the Board were convinced a higher dividend would not compromise the creditworthiness of the RBI, there is a more fundamental economic reason why a special dividend would not help the Government with its budgetary constraints. Here’s why: Much of the surplus we make comes from the interest we get on government assets or from the capital gains we make off other market participants. When we pay this to the government as dividends, we are putting back into the system the money we made from it – there is no additional money printing or reserve creation involved.2 But when we pay a special dividend to the government, we have to create additional permanent reserves, or more colloquially, print money. Every year, we have in mind a growth rate of permanent reserves consistent with the economy’s cash needs and our inflation goals. Given that budgeted growth rate, to accommodate the special dividend we will have to withdraw an equivalent amount of money from the public by selling government bonds in our portfolio (or alternatively, doing fewer open market purchases than we budgeted).”


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