SN Misra
Three Supreme Court judges were superseded in 1973 as they did not toe the line of then powers that be. Noted jurist Nani Palkhivala observed that the then Prime Minister Indira Gandhi was looking for a ‘committed judiciary’ and that the judiciary ‘has been made to measure’. The resignation of Urjit Patel as Reserve Bank Governor for personal reasons echoes similar sentiment. Dr Raghuram Rajan has aptly mentioned that the government is giving a clear signal that if the institution does not do its bidding, they will be shown their place. This is an ominous continuum that started with the unceremonious dismantling of the Planning Commission. Discerning observers such as Dr Gopal Gandhi believe the government has thrown the baby out with the bath water. Subsequent events have proved how Niti Aayog is bereft of financial power and has become a toothless institution.
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As if dismantling the Planning Commission was not adequate, the government has also tinkered with autonomy of the Central Bureau of Investigation and tried to remote control the Supreme Court through the former Chief Justice of India; it prompted four senior-most judges to protest publicly. A few months back, then Chief Economic Adviser Arvind Subramanian also resigned citing differences with the government on the impact of demonetisation, about which he spoke subsequently in unfavourable terms.
It would be in the fitness of things to understand what happened at the board meeting on November 19, after the outburst of Dr Viral V Acharaya on October 26 against emasculation of the RBI. There were five issues on which the government-appointed members, including RSS ideologue S Gurumurthy, sparred with the RBI. The RBI relented only on one agenda: Reducing capital adequacy ratio from 9 per cent to 8 per cent, in line with Basel-III guidelines. However other items on the agenda, such as relaxation of Prompt Corrective Action, transfer of equity to the Consolidated Fund of India, providing a separate window for restructuring MSMEs and extending liquidity support to non-banking financial companies, have been referred to committees. The RBI would not like to let its guard down on recovery of default by private corporates.
Urjit Patel has been constantly making a case that the RBI should have better control over public sector banks, in the matter of choice of board members, sacking incompetent ones and merger of banks
It is to the RBI’s credit that at the latest meet to fix repo rate, the bank allowed open market operations by selling government bonds to infuse liquidity in the banking system. Viral Acharya mentioned that liquidity deficit in the banking system stood at Rs 75.33 billion. It further promised to reduce statutory liquidity ratio from 20.5 per cent to 19.5 per cent, in a year’s time, thereby bringing in another Rs 1.5 lakh crore into the system. These are concrete measures the RBI has taken to improve liquidity support to NBFCs.
Restructuring MSME loans and providing separate financing window are sensible proposals, as MSMEs provide enormous employment opportunities, are technically fleet-footed and provide support to large-scale industries. But by not providing a financial window to MSMEs, the RBI is being perceived as being anti-growth of this sector.
There is also criticism that regulatory function of the RBI has been below par. Urjit Patel has been constantly making a case that the RBI should have better control over public sector banks, in the matter of choice of board members, sacking incompetent ones and merger of banks. It is true that the government is the majority equity stakeholder in these PSBs. While this issue has been raised by previous Governors such as Duvvuri Subbarao, it would be better if a more decisive step such as privatising PSBs is taken. It would make them more professional, commercially viable and less vulnerable to political pressures. The sharp difference in the NPA levels between private banks and PSBs is indicative of their autonomy and greater professionalism.
Urjit Patel has been a quiet gladiator from his early days as deputy governor of Reserve Bank. In January 2014, he gave a far-reaching report that changed wholesale price index to consumer price index as the basis for policy determination by the government. CPI is more reflective of the angst of a common man, who suffers from food inflation. It has weightage of nearly 47 per cent in the consumer basket. The other abiding contribution of this committee has been evolving a glide path of 4–6 per cent inflation, beyond which the government of the day and the RBI would be jointly accountable. The Monetary Policy Committee has been scrupulously following these inflation targets as the leitmotif for fixing repo rates and controlling credit creation in the economy.
Francis Fukuyama in his remarkable book ‘Identity: The Demand for Dignity and the Politics of Resentment’ has written how accountability and autonomy have a major role in liberal democracy. Alluding to bureaucratic structure in democracies all over the world, he has brought out how a high degree of autonomy reduces oversight and accountability. The quality of Executive is influenced by level of professional expertise. If bureaucracy is incompetent and complicit with the political appointees, Fukuyama believes it would be better to limit their discretion and subject them to clear rules. Fortunately, in the context of the RBI, since its inception it has evinced a very high degree of professional competence and specialisation. Testimony to this fact is that almost 60 per cent of its governors have been renowned economists. Similar experience is shared in case of Federal Reserve Bank, US, where almost every Governor has been a renowned economist.
The board of the RBI is an advisory body, which can’t set the functional agenda of the RBI, the government is trying to do. This is where autonomy to professional experts of RBI has become paramount. The RBI Act, 1934, contained a provision that will control credit without ‘being politically influenced’. Urjit Patel as a quiet crusader has proved he can’t be manoeuvred by political wire-pulling. By abnegating the credo of a ‘committed banker’, he has upheld it pristine record of professional competence, independence and above confidence of people at large.
The writer teaches economics. e-Mail: misra.sn54@gmail.com.
