RAID ON RBI'S CAPITAL FUNDS
December 24, 2018
RAID on RBI’s CAPITAL FUNDS
This refers to EPW
Special Article “Paranoia or Prudence?” (December 8). Strangely, none of the
experts who have been commenting on the recent controversy about GOI intention
to draw from RBI’s reserves (substantial portion of which can be monetized only
by sale of gold or securities held with RBI) has commented on the adequacy of
the present level of share capital of India’s central bank which is remaining
static at Rs 50 million since inception of RBI. I am not commenting on the
content of this article which can be easily perceived as a pro-GOI note to take
forward the idea mooted in the Economic Survey 2015-16 and withheld after being
proved unwise by RBI under the leadership of Raghuram Rajan. On this issue, no
elucidation is needed beyond reading Raghuram Rajan’s speech at St Stephen’s
College, Delhi “The Independence of the Central Bank” included under
references.
In a recent article “Why should the government own the RBI?” TCA
Srinivasa-Raghavan opened a debate on why not privatize RBI (Business Standard,
December 22). I am impressed by TCA’s suggestion in the concluding paragraph of
the article. I quote: “…in the interest of academic enquiry, commission a
three-year project to examine the implications of re-privatizing the RBI, to be
led by Mr Rajan and Urjit Patel.”
TCA’s suggestion is
influenced by the burden of knowledge of history and the awareness of the GOI's
usual tendency to dodge quick solutions. But, recent experiences in India have
shown that, where there is a will, there is a way. I would refer to only two of
them relevant in the context of transforming RBI into a non-GOI owned,
‘Board-driven’ (I have been hearing this in the media on and off nowadays) and
professional entity performing all of the central bank’s present roles and
functions. They are, nationalization of banks in India and appointment of
Shaktikanta Das after complying with all procedural formalities in record time
(let us not publicize the time taken for that). Next paragraph is based on the
assumption that ‘in principle’ GOI has decided to privatize RBI. The process
will involve the issue of an ordinance by Centre to provide for:
1. Return of
the present share capital of RBI at book value to GOI by RBI.
2. Reconstitution
of RBI’s Central Board and Local Boards.
3. Arriving at
the amount of share capital RBI should have. This could be between $500 billion
to $1000 billion depending on the shareholding pattern.
4. Taking into
account the special Indian conditions, Centre, states, and banks should hold 60
to 70 percent of the reconstituted RBI. Rest could be held by institutions like
LIC.
5. Redrafting RBI Act to ensure that the basic features of the
legislation remain in conformity with the existing Preamble of the RBI Act and
role expectations from the central bank.
Perhaps, a Committee
comprising Dr Bimal Jalan, Dr Rakesh
Mohan, Dr Rajan, Dr Urjit Patel, and the present RBI
Governor may be entrusted with the job of drafting the Ordinance in a month’s
time.
M G Warrier, Thiruvananthapuram
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