Saturday, 14 January 2017

RBI's functioning must be open to scrutiny

The RBI Central Board recommending 'demonetization', based on Prime Minister Modi's instructions without following any process, hurriedly within hours, landing the nation into an instant fiasco, speaks volumes about its 'autonomy' in managing country's monetary system properly.

RBI would have been well with in its rights rejecting or delaying or subjecting the Modi's instruction to detailed scrutiny. RBI being a apex body of experts and professionals, accepting Modi's instruction and recommending the same within hours without detailed study of the issue, examining feasibility, estimating costs & benefits, analyzing its impact on civil life & economy, preparations needed by all banks etc is nothing but abdicating its responsibility in managing country's monetary system while pleasing politicians who do things only for political benefits in the disguise of national interest. For this fallacious decision with disastrous effects, RBI must answer the nation with complete details leading to this senseless demonetization which achieved nothing, with huge expenditure of demonetization, impacted common man greatly, derailing informal economy with 80% share of employment and a million jobs lost and economic normalization is about two years away. Responsibility should be fixed and culprits punished.

The RBI annual report shows the its annual expenses in 2015-16 were Rs 14,990 crore. These are comparable to the annual expenditure of many states in India, and many times bigger than that of most central banks and regulators in India and abroad. Nearly a third, i.e. Rs 4,477 crore, is spent on RBI staff salaries, superannuation, housing, maintenance, directors’ fee and board meeting expenses. Such a large use of public money requires adequate scrutiny.

In RBI, all the general powers of the Central Board have been delegated to the Committee of the Central Board*, virtually can do everything that the Central Board can, under the RBI Act. This defeats the spirit of collective decision-making at the Central Board level and circumvents the necessity of obtaining votes of the majority of members of the Central Board. The minutes of the Committee are placed before the Central Board; this serves little purpose as decisions are already taken and members did not participate in them. The Central Board effectively becomes responsible for all decisions of the Committee without deliberations while the Committee has no accountability on how it discharges its duties.

*Committee of the Central Board's members are Governor, Deputy Governors and any Part-time Non-Executive Director/s present where the Governor has its headquarter (generally in Mumbai). EDs also attend as invitee.

The present Central Board of Directors of the Reserve Bank of India are:
  1. Dr. Urjit R. Patel, Governor 
  2. Shri R. Gandhi, Deputy Governor 
  3. Shri S. S. Mundra, Deputy Governor 
  4. Shri N. S. Vishwanathan, Deputy Governor 
  5. Dr. Nachiket M. Mor, Country Director for the Bill & Melinda Gates Foundation 
  6. Shri Natarajan Chandrasekaran, CEO and MD of TCS 
  7. Shri Bharat Narotam Doshi, Member of the ICAI 
  8. Shri Sudhir Mankad IAS (retd), Ex- Chief Secretary, Gujarat
  9. Shri Shaktikanta Das, IAS, Secretary, DEA, Ministry of Finance, GOI 
  10. Ms. Anjuly Chib Duggal, IAS, Secretary, DFS, Ministry of Finance, GOI.
The RBI does not make the Board agenda or minutes public. An RTI enquiry about Board minutes was turned down. Even the minutes of Board meetings held five years ago are not made public. If the Board was required to make its proceedings public, would it have continued to behave in this manner or would public scrutiny have prevented such functioning?

The understanding is that along with transparency comes autonomy. When participants know that discussions of the meeting will be made public, they behave more responsibly. This reduces the chances of the Board being pressured or taking hasty or irresponsible decisions.

Parliament must examine in detail the functioning of the RBI Central Board. The RBI must be required to make public, the agenda and minutes of all past meetings of the Central Board. If there are to be any exceptions based on national security, it is Parliament that should decide. The Board must not be allowed to abdicate its responsibility. Unless Parliament amends the law and enforces a well-functioning of the Board, the RBI will continue to be a weak institution, a fertile ground for further mistakes.

My View:
In this world every body is answerable to some body, no matter how big he is or where ever he is placed. RBI is one of the least controversial institutions so far. Not any more. Urjit Patel, present governor blindly obliging Modi is the cause. Of course these days it is dangerous to oppose or Modi & Company for anybody in India. If Urjit Patel didn't have guts to oppose Modi, he didn't have any right to facilitate destruction of economy as well. He should have silently resigned and left RBI like his predecessor. Due to Urjit Patel's indiligent act, he has been destructor of RBI's autonomy and RBI has become subordinate to Ministry of Finance. RBI decision making process must become more transparent, accountable, due-diligence imperative, and decisions must be in best interest of the nation. Ministry of Finance should be shown their limits and never to encroach into domains which are not theirs, under any circumstances.

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