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
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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