December 24, 2018

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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