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Should RBI Be Controlled at the Cost of Sovereignty?

Reserve Bank Of India

K.GaneshNow,,,,,

Government’s attempts to curb the Reserve bank of India’s independence of expression and action will have an adverse impact on India’s global credibility and growth story.

To garble a memorable Dickensian sentence, now is the worst of times for the common person and his chief patron, the only performing flea in the Indian institutional scenario, the banking regulator and proven inflation watch-dog – in short, the Reserve Bank of India.

When the balance of payments position was in a shambles back in 1990 due to the myopia of the previous governments’ policies and the nation was about to default on its global debt, the two great forces-the sovereign government and the central bank joined hands, walked carefully in step and pulled the nation out of an unprecedented credibility crisis.

As the International Monetary Fund (IMF) provided the financial crutches, and the comity of nations heaved a collective sigh of relief, India began to stride steadily on the path of progress while attempting to protect the basic purchasing power of the common man.

Thus was a disaster like the recent ‘Greek tragedy’-the major economic and monetary crisis in modern-day Greece- successfully averted by the harmonious action of the government hearkening to the expert advice of the central bank.

Now, however, the time, as Hamlet put it, is out of joint.

greek-financial-crisis
Image source scaixin.com

Since the crisis of the early 1990s, the Reserve Bank has grown in leaps and bounds in the eyes of the impressively re-booting nation as well in the gaze of the international community, helping the country survive the worst effects of one external crisis after another while standing up firmly against the economic myth-making of the ruling party and solidly by the ordinary citizenry.

For all that they know that the Reserve Bank of India was created by an Act of Parliament, that it is cent-per-cent owned by the government, that its Governor is a government-appointee, that it is regularly audited by the government-appointed auditors, that it answers hundreds of parliamentary queries each year and that it ploughs back whopping sums of money each year to its stake-holder by way of profits, the Ministry of Finance babus are, it seems, ill-pleased. The central government already has a significant representation on the central bank’s board. What then can we say about the accountability of our central bank? Is it beyond controls? On the contrary! The Reserve Bank has remained accountable not only to the successive governments as stated above but also at the world forums over the past two and a half decades. In these examinations, it has come out in flying colors.

The boot is on the other foot-it is the ruling governments over several decades that have found it difficult, certainly inconvenient, to be accountable to its voters, and been accused of reneging on their poll promises.

The growing prestige of the Reserve Bank has, over the years, redounded to the credit of the government. The well-calibrated and effective liberalization performance of the Reserve Bank was a major reason for the successful India story of the past decades.

What went wrong? Why is the government hell-bent on disempowering this august and sincere servant of the Indian people-especially when it is required to be at its strongest to advance the splendid efforts of Prime Minister Modi to revive the India Story abroad?

Is it a case of shooting the messenger-for the Reserve bank has never fought shy of telling the people of India the truth about their purchasing power despite the government’s marked preference for hearing comforting falsehood?

The previous governments had covenanted with the Reserve Bank for the reduction of their excess note-printing to bridge the fiscal deficit. This was a significant step forward in the government’s accepting its responsibility to help the Reserve Bank to keep inflation down and to protect the common man from unbearable price rises. The government thus tacitly acknowledged that it was accountable to the electorate through the central bank’s auspices.

This was always a shackle to vote-minded and spendthrift governments who resented the central bank’s moral high-ground and enviable transformation into the real watch-dog of the common man, discreetly admonishing the governments at the centre and in the states on their reckless populism and inutile subsidies.

arun-jaitley

The truth is that ‘sovereignty’ – bandied about by a few ‘experts’ and sought to be reduced to a technicality- may vest with the government of the day as the legal ‘owner’ of it but what is of equal significance is the issue of credibility in the eyes of the of the common man and of the international financial community.

To say in the media, as some ‘experts’ have done in recent days, that what the international community thinks of our central bank and of the current debate about the threat to its freedom, is not important is incredibly naïve, especially so, at a time when our PM is working so hard seeking a global financial stake in the re-kindled India story. Without doubt an independent central bank will be a key factor for attracting global trust and investment.

Make no mistake- this debate is not about Parliament’s sovereignty-this debate is about protecting the interests of the common person from political expediency, the need for greater transparency of disclosures in the public domain, for greater government prudence in borrowing money from the public, about the level of inflation and the nature and pace of reforms that would foster growth without affecting the poor- above all this debate is about all these concerns having to be monitored by an expert, independent, ethical and fearless central bank.

The ongoing efforts to throttle the central bank of the country which is currently, and has been over the years, a true champion of the common person make it imperative that all right-thinking people move quickly to mobilize public opinion, on all forums available, in the contra direction, i.e. to have Reserve Bank of India, the inflation watch-dog and bank-regulator, formally categorized as the Fifth Estate which shall be beyond any manipulations arising from the narrow self-interest of the government of the day.

Make no mistake Mr Jaitley, the moral power and the credibility of India as an economic and monetary force in the eyes of the world in general, and the global financial markets in particular, rest with the central bank that has won unstinted acclaim from global institutions for its brilliant anticipation and pro-active management of global financial and monetary crises.

Not just the global rating agencies and the world’s governments but the investors who will finance Prime Minister Modi’s global growth story are watching closely to see if political expediency will choke the central bank’s celebrated freedom of expression and action, thus making India a relatively more unsafe destination for their investment.

Therefore, Mr Jaitley, please leave well alone!