Time to hold the RBI to account

The central bank cannot escape its share of the blame. In fact, since the demonetisation decision, its voice has dried up

Published: 02nd January 2017 04:00 AM  |   Last Updated: 02nd January 2017 04:25 PM   |  A+A-

The November 8 decision to withdraw currency notes of Rs 1,000 and Rs 500 has turned into a full-fledged political battle which will run on and attract headlines well into the new year. But while the blame for the mismanagement that has followed the withdrawal of 86 per cent of currency has been placed largely at New Delhi’s doors, it is important not to overlook the role of the one institution that is constitutionally charged with the responsibility of managing the currency of the nation—the Reserve Bank of India.

There are those who argue that the RBI had little to do once the political decision was taken. But that would be undermining, underestimating and even dismissing the huge role that the RBI has to play and indeed should have played in managing this situation.

Even diehard opponents of the prime minister cannot deny that the RBI could have advised better, smoothened the process, and at least ensured that the hardship to the common citizen was minimised. And if it could not ensure even this, it might be fair to ask the raison d’être of an institution that employs some 16,000 people and has liberal training and learning budgets; during 2015-16, as many as 599 RBI officers were deputed to attend various training courses, seminars and workshops conducted by banking and financial institutions and multilateral institutions in over 55 countries. This huge RBI army is led by the Governor, who enjoys almost unfettered autonomy. The Centre may give directions to the RBI “in public interest” but that too has the legal proviso—“after consultation with the Governor”. So here is one office protected well enough to be independent and which can even stand up to the powers that be in the finance ministry.

The argument here is not for the RBI to stand up though. All that was required of it was to offer insights, advice and unvarnished data that could help the Centre see in plain light the problems it would face and offer solutions and better execution skills to alleviate the suffering of the common man.

The institution of the RBI has over the years earned the respect of many by doing just this—providing analysis and inputs regarded as fairly, even thoroughly professional (if not fiercely independent), and these inputs built the ground for policy actions that could not be far removed from the ground readings. There have been phases when this was not the case but by and large, the RBI has stood up as a voice delinked from politics. This was its core strength, and this is precisely what has been feared lost in recent weeks. For those who appreciate the value of the institution, particularly those who have seen it working from close quarters, this is a loss bigger than any other.

In fact, since the November 8 decision, the RBI’s voice has dried up, replaced with a multitude of notifications conveying changes in regulations that have not only perplexed people but also had bank officers wondering what to make of the 66 notifications in 47 days. In effect, the RBI under the new leadership of Governor Urjit Patel has brought back what former Governor Duvvuri Subba Rao described (in his book Who Moved My Interest Rate?) as a “stereotypical view of the Reserve Bank as a rigid, wooden- headed monolith, making rules and regulations with little understanding of the realities of India”. How true!

How can the RBI fix this? It is true that the RBI is currently headed by a leader who is not comfortable speaking freely and openly. This by itself is not a disadvantage as (contrary to modern-day received wisdom), the quiet doer is more appreciated than the loud talker. The idea is not to speak as much as to have an attitude of openness and sharing that can enable people to see what the RBI is doing to manage the situation. This cannot be achieved by deadpan FAQs that keep getting amended every day but by physical interactions at multiple levels, and perhaps a range of voices rather than one lone voice from the top that can speak, interact and supplement the office of the Governor in engaging with the public, beyond communications through the “pink” press.

The exercise can bring the double benefit of opening the RBI leadership to inputs that they can never receive by moving up and down the corridors of their rather well-appointed offices. Even in a situation as difficult as the one now, it is possible to pick up inputs that can help translate to an understanding of the challenges facing the common citizen.

However, the problem goes well beyond mere communications challenges. Better communications cannot absolve the RBI of all that it has not done so far on the professional front. What is also required is a series of steps to send strong internal signals that this is the time for the RBI to rise in service of the people. Instead, the RBI has clamped up even more and has stopped data updates on how much of the old notes have returned.

In sum, there is no dispute that this is the one institution that could have raised an early red flag and advised the Centre better. Though we cannot be sure, there are no indications so far that this was done. While the political institutions will feel the heat of public reaction (or reap the benefits, depending on how you read the situation), the public anger directed at the banks in general and the RBI in particular is no less.

The RBI’s tomes on Currency Management include a letter written by a Mumbai resident to the RBI Governor S Jagannathan in the 1970s expressing his ire: “You and your officers deserve to be shot dead for your bungling… we bank our money in nearby banks. They give me soiled and torn notes. They say the money has been got from the RBI… for your mismanagement, you should be given a garland of torn notes.” If this is the depth of anger at soiled notes, one can only imagine what the people must be thinking when the complaint is that there are no notes at all.

(Syndicate: The Billion Press) 

Lekha Rattanani

A senior journalist based in Mumbai

Email: editor@thebillionpress.org

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