WEEKEND LIGHTER: RBI Autonomy: The final diagnosis

WEEKEND LIGHTER: RBI Autonomy: The final diagnosis
(January 14/15, 2017, No.2/2017)
Weekend Lighter is posted every Saturday @mgwarrier.blogspot.in
Feel free to mail your views on this edition of WL to mgwarrier@gmail.com

Happy Pongal and Makara Shankranti
From
WEEKEND LIGHTER

I
Opening remarks
RBI Autonomy: Final diagnosis

This refers to the piece “How independent can a central bank head be?” by G Naga Sridhar (Business Line, January 14). The revelations oozing out of Dr Y V Reddy’s “Na Gnapakalu”(My Memories) and the book “Who Moved My Interest Rate?” published last year by his successor Dr Duvvuri Subbarao together give the rationale for setting up of the Financial Sector Legislative Reforms Committee (FSLRC) with a ‘yours obediently’ chairperson, by the then political leadership.
The FSLRC chairperson proceeded with an assumed mandate to ‘truncate RBI to size’, with less emphasis on financial sector legislative reforms per se. The monologue report its chairperson wrote, brushing aside dissents from members and Dr Raghuram Rajan’s perseverance to minimize damage to the institution he presided over during 2013-16 have become history.
Dr Reddy has, in another interaction with media, said that he would have quit governorship, if GOI went against his advice in the matter of demonetization. In the absence of any evidence that RBI had opposed the move, observations like this coming from eminent veterans serve only to weaken the central bank further. Urjit Patel, who is fortunately healthy, has no option to get hospitalized on false grounds, either.
Now that three successive governors have been under political pressure to fall in line with GOI’s short-term perceptions about economic policy, the diagnosis is clear and pressure has to mount on GOI to restore RBI’s credibility and ability to perform the central bank’s mandated functions within the contours of the law of the land.
There is a concerted effort from vested interests to weaken RBI, by creating confusion about ownership (RBI’s capital belongs to GOI!), autonomy (An air of suspicion is created by giving an impression that RBI is seeking ‘functional and policy independence’ outside the legal framework, which is not the case) and comparison with functions of central banks elsewhere. Fact being, RBI’s role in India’s economic growth has evolved in the Indian context over decades, and the inseparability of alignment between monetary and fiscal policies as also the need for harmonious relationship between GOI and RBI was never under dispute till 1990’s. Once diagnosis is clear, cure is within the reach.
M G Warrier, Mumbai
II
Recent responses
Futile debate

This refers to the report “It was govt. that advised RBI on demonetization’(The Hindu, January 11). After a relentless campaign against the November 8, 2016 announcement withdrawing ‘legal tender’ character of Rs1000 and Rs500 notes and reaching nowhere, the media and a section of analysts are dragging in eminent statesmen to comment on the impact of demonetization on economy and trying to create an impression that RBI and GOI were not on the same page on the measure and its implementation. It is argued here that ‘RBI Act does not give the central bank to demonetize an entire denomination.’Section 26 of the RBI Act reads asunder:
“26. Legal tender character of notes.
(1) Subject to the provisions of sub-section (2), every bank note shall be legal tender at any place in 4[India] in payment or on account for the amount expressed therein, and shall be guaranteed by the 5[Central Government].
(2) On recommendation of the Central Board the 6[Central Government] may, by notification in the Gazette of India, declare that, with effect from such date as may be specified in the notification, any series of bank notes of any denomination shall cease to be legal tender 7[save at such office or agency of the Bank and to such extent as may be specified in the notification].”
It is well known that RBI and GOI hold ongoing consultations on policy issues. Whatever be the stance of political leadership, so far there is no evidence to show that RBI had expressed dissent on the idea of the withdrawal of high value currency. The quote from the note recorded by RBI and submitted to Parliamentary Standing Committee shows that RBI Central Board gave its view on GOI proposal, before the November 8, 2016 announcement. In a democracy, mooting of proposal for such a significant measure by government and central bank agreeing to it after due deliberations should not have become a subject of controversy.
M G Warrier, Mumbai
Target 100% literacy

This refers to the report “UP: More children than people in Spain but worst pupil-teacher ratio in India” (Business Standard, January 8). By almost every parameter, the largest state in India continues to be the most neglected state, viewed in the context of human development indicators including literacy level. It is a shame that this is despite the proximity of the state to national capital and the state having given maximum number of prime ministers so far. We must thank indiaspend.org for telling the obvious with supporting data making it perilous for policy makers to ignore. The report, without listing, has brought out the following issues which need immediate policy interventions from central and state governments:
(i)                Expenditure on primary education: This has to go up drastically, if literacy level has to improve at a faster pace. Resources can come from Centre, states or private sector. Perhaps NITI Ayog can have an assessment and give guidance in the matter.
(ii)             Pupil-teacher ratio: It may not be possible for states like UP to find enough teachers locally to improve the ratio. Centre should help such states by creating a talent pool at national level from which deficit states can recruit teachers.
(iii)           Child labour and school attendance: The relationship should be studied and corrective measures taken. There should be disincentives for schools working with attendance under acceptable levels.
(iv)           Exams: There is a case for rethinking about the present system of allowing promotions without proper examinations. This observation is in the context of the observation that majority of Class III students are not able to read Class I text books!

If Prime Minister Narendra Modi’s reference to ‘absence of toilet facilities in schools’ as a possible reason for girl children dropping out of schools at upper primary level can bring about changes in our attitude to infrastructure in schools across the country, we can trust in nation’s ability to change the way people think about literacy and to move towards 100% literacy faster than many think.
M G Warrier, Mumbai

The missing Indian context

This refers to T C A Srinivasa-Raghavan’s article “The wrong Lego set” (Business Standard, Marginal Utility, January 7). While eagerly looking forward to read the remaining five parts of the series, one feels the comfort of having someone still left in the media who can speak out truth without the fear of losing the constituency. The writer has brought out cogently, the evolution of policy-making in India, bereft of the Indian context, all through.
Over time, the distance between the thought processes of political leadership and the bureaucracy and judiciary, bureaucracy and the intelligentsia (including economists) and the Civil Service personnel who support political leadership in governance and statutory bodies has increased. If the widening gap is not quickly gauged and remedial measures taken without delay, the democratic system of governance in India may go through an unprecedented turbulent phase, recovery from which will take time and the bruises the institutions including government suffer in the process may take a long time to heal.
In the Indian context, it is not just the schools to which economists or for that matter analysts and thinkers belong that matters. This is the only country  they get lured and hired by political leadership and a subservient media forcing them to either remain silent or become the mouthpiece of their ‘masters’. The irony is, this happens without their ‘knowledge’. Those who prefer to retain their freedom of expression, will be identified and handled in the Indian way. Raghuram Rajan was one such ‘victim’.
M G Warrier, Mumbai

III

RBI Governor Urjit Patel’s New Year Message*

 Dear Colleagues,
As we stand at the cusp  of another  New  Year,  my  greetings  to you and your families  for a peaceful  and  prosperous 2017.  During the year gone by, we have continued our efforts  at restoring  macroeconomic  stability  in  the economy.  While the policy actions have already shown positive effects, nevertheless they are work in progress and need to be fine-tuned constantly to keep pace with the changing environment. Internally we continue to focus on enhancing specialization within the organization, even while strengthening the performance evaluation system to help identify areas requiring improvement and initiating appropriate skilling interventions. During the year we have concluded the Wage Settlement process which was well received by all sections of our staff.
Together, these measures should go a long way in enhancing staff engagement and efficiency. It is said that nothing is constant except change and we are in the midst of constantly changing times, throwing new challenges our way every day. I am confident that all of us working  together will rise to the occasion and face these  challenges in a manner befitting the reputation of this esteemed organization. Our recent engagement with withdrawal of SBNs is a case in point.
While on the subject, let me emphasize that one thing we should all zealously guard is the integrity  and reputation of our organization and any act belittling  the same should deserve zero tolerance from all of us. Needless to add, the Bank has achieved the present level of excellence only due to our collective efforts towards a common goal. Once again, I wish you and your families, happiness and success in the coming New Year.
With warm regards,
Urjit R. Patel

*Source: RBI Newsletter 

DID RBI SAY SO?
"In details available exclusively with India Today TV*, the RBI also said it considered printing Rs 5000 and Rs 10,000 notes.

HERE ARE THE 10 BIG REVELATIONS
1.     RBI says demonetization of high-value notes was a 'joint decision' between the government and the central bank.
2.     Demonetization's primary objective was to crack down on counterfeit notes.
3.     RBI mooted introducing 5000 & 10,000 rupee notes as early as October, 2014 - a few months after Modi came to power.
4.     RBI said the Rs 2000 note was chosen in view of the inflation and to manage currency logistics.
5.     On why Rs 2000 note was not introduced in a phased manner, the RBI said the new design will 'catch the fancy of the public'.
6.     Asked when the printing of new currency notes started, the bank said: June 2016.
7.     On what led to the final decision on demonetization, the RBI said new currency had reached critical minimum stock.
8.     The RBI said it had weighed in the cash crisis and understood that it might not be possible to replace notes fully.
9.     The RBI considered digital payment option to take a part of the cash crunch load.
10. The RBI claims demonetization had no impact on its balance sheet.
Source: Yahoo website.Authenticity of information not checked






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