FM wants the RBI to Kowtow
Bhagwati Prakash Sharma
THE Finance Minister, P. Chidambaram has been unduly insisting that the Reserve Bank of India (RBI) fall in step with the government and ‘walk in the same direction as the government’.
The constitution of the country, as well as the RBI Act, envisions complete autonomy for the Reserve Bank of India, as the prime custodian of the monetary policy of the country to shield the economy from any fiasco, arising from political muddling or populism.
Notwithstanding this constitutional safeguard against any political interference in the working of the RBI, the FM’s repeated assertions using the words such as, “in our (government’s) view, the government and monetary authority must point in the same direction and also walk in the same direction. As we take steps on the fiscal side, RBI should take steps on the monetary side” are altogether unwarranted and amount to constitutional impropriety. Even the Prime Minister had to intervene, though gently, on the side of the RBI and justify the autonomy enjoyed by the RBI. In view of the repeated assertions of the FM in the public and in the press, expecting the RBI governor, to take pro- conformist decisions, D. Subba Rao is having very tough time to preserve and uphold RBI’s autonomy in the area of monetary policy and banking regulation for protecting the economy from undue interference and pressures, of vested political interests. The global meltdown of 2008 had happened solely because, the American Federal Reserve (the US central bank equivalent of India’s RBI) had unduly fallen in line with the US administration, in facilitating the generation of artificial wealth, by facilitating unscrupulous financial innovations for political comfort in bridging the trade via sovereign borrowing from abroad by accepting unaffordable deposits in the federal reserve or in the Fennei Mai and Fredie Mac, and using mortgage bonds to promote casino banking by securitizing these bonds.
It is even more worrisome as the FM’s cautions to the RBI are not mere casual, as he has been persistently and repetitively putting pressure upon the RBI, inter alia to allow corporate and business houses to set up own banks, even before enacting the enabling legislation, incorporating the requisite norms as prescribed by the RBI to prevent any possible misadventures by the promoters of these banks. Finance Minister’s insistence upon the RBI to move for issuing fresh licenses for banks to the corporate houses without amending the law and his overt pressure upon RBI to issue licenses in anticipation, just upon his (FM’s) verbal assurance that he would get it amended in the time to come is altogether unjust. How can he (the FM) be confident that the parliament would pass whatever is moved by him (the FM). Pressurising the RBI without amending the Act to incorporate reasonable regulatory powers suggested by the RBI and necessary to check and prevent casino banking is not warranted. If Parliament would not pass these amendments what would be the fate of all such banks and money parked by innocent depositors without the regulatory powers requested by the RBI? The bane of Euro-American Banking fiasco leading to the meltdown of 2008 followed by the Euro-Zone crisis was the result of similar casino banking, which the RBI wants to rule out. Due to this casino banking alone the Euro-American world has been trapped in the worst ever crisis in modern economic history and the existing International Financial Architecture, including the International Monetary fund, the World Bank and all the stability mechanisms too have not only failed to anticipate the multiple crises, but even proved too petty to take any remedial measures even to this date.
Chidambaram should not forget that a mini trailor of such a casino banking had alone led the country into the worst ever share scam of 1992, wherein Rs. 12,000 crores of the portfolio management scheme (PMS) of the public sector undertakings were misused in the stock market for 5 years, with the active connivance of the foreign and Indian (including the public sector) banks, and the public sector banks involved in scam had lost Rs. 4,024 crores, down the drain without any trail to this date. The then RBI governor Mr. Venkitramnan was quite forthright to hint to the then finance minister Dr. Manmohan Singh in advance of the eruption of the scam that he was apprehending misuse of the PMS money of the PSU’S in the stock markets. But he was advised to ignore it by the then Finance Minister Dr. Manmohan Singh. The RBI governor admitted this before the joint parliamentary committee (JPC) set up to investigate that scam. It would also not be out of place to mention that Mr. Chidambaram too had to resign from the union cabinet then as the then Commerce Minister, for his investments in the Fairgrowth , which was involved in the share scam of 1992.
It is even more distressing that the Finance Minster has been relentlessly endeavoring to exert undue pressure upon the RBI, of which at least five instances have been reported in media as well, since October 1, 2012. But D. Subbarao has rightly rebuffed and has been forthright to reassert that the new bank licenses would be rolled out only 8-9 months after the enabling legislation. Indeed, the regular and repeated attacks on various constitutional and statutory regulatory authorities by the UPA ministers would strangulate the spirit of constitutional and statutory autonomy necessary for healthy democracy. The Election Commission was also blunted by making it a multi-member body and the same is being proposed for the CAG, after he has repeatedly indicted the government for its financial impropriety in more than one scam. Likewise, the RBI governor was also made subordinate to the F.M. in the law passed to put in place, the mechanism for inter regulatory authority disputes, after the dispute arose over ULIPs between the SEBI and IRDA. Judicial activists have been attacked on several occasions and especially in the 2G and Neera Radia cases. Role of the Bar Council is being undermined under the proposed law for Higher education commission. The School education has also received the most lethal blow after providing for mandatory promotion to next higher class up to 8th standard, coupled with making the secondary board optional. Besides, the premature departure of P. H. Kurien from the patent controller’s office, after his bold decision to grant compulsory license for Nexaver, to Natco against the German multi-national, the Bayer AG is also arousing suspicion.
In view of the above and the scores of similar other instances of inflicting blows upon various constitutional and statutory authorities, public opinion has to mobilized to put effective pressure upon the government to revitalize these authorities instead of attacking these institutions and rendering them toothless.