critical issue

Source: The Hitavada      Date: 06 Nov 2018 11:30:52

THE statement of the International Monetary Fund (IMF) that it is monitoring closely if the independence of the Reserve Bank of India (RBI) is getting affected by some of the Government’s moves, may appear good, but is actually meaningless. There is no doubt that institutions like the central bank of a country are valuable and their independence is a critical dimension of their mandate. Despite this, independence per se has to be viewed in keeping with the purpose they are supposed to serve and whether they are conducting themselves actually true to their mandate. Presently, the issue that has come to fore involving the RBI is far too critical and perhaps needs the Government’s intervention within the framework of the Constitution and related regulations and norms. If a certain institution is failing in its duty or not serving the stated purpose properly, then the Government should be considered perfectly within its constitutional and regulatory powers to intervene to start a course-correction to fulfill its larger duty as custodian of the national economy. 

Even though the Reserve Bank top brass appears to be perturbed by the moves, the Government has not crossed the red line and is perfectly within its domain while dealing with the central bank whose method and manner is under question for the present. Though the Act 7 of the Reserve Bank of India Act permits the Government to intervene, it has refrained from a direct plunge into the matter. At this moment, it is only seeking certain information and assessment handled by none other than the RBI.

Just as the Government is still in an exploration mode how it can tackle the current crisis blown up due to the Non-Performing Assets (NPA) phenomenon, the Central Information Commissioner, however, has issued a notice to the RBI Governor for non-disclosure of the wilful defaulters’ list. Obviously, the process of seeking information from and assessment of the banking frauds from RBI has begun in right earnest. We only hope that these steps will lead to adding enough fortitude to the RBI in particular and banking sector in general so that frauds can be avoided with firm and stern hand.

Until this stage, there is no infringement of the central bank’s freedom by the Government or any of its agencies. To that extent, the IMF need not be unduly alarmed about the so-called infringement of the RBI’s independence. At this stage, however, it must be noted that the idea of complete operational independence to the RBI cannot be taken as a clause of absoluteness. For, independence of institutions such as the central bank is often circumscribed by the conditions prevailing in the larger society. If the institution is proving itself to be incompetent in a given situation, then it is the primary duty of the Government to do a little hand-holding to choose appropriate direction.

If the IMF is concerned about the independence of India’s central bank, then it must satisfy itself with details of what the Government is doing. From the point of view of its mandate, theIMF should not have anything to do with the issues between the Government of India and the RBI. And it must be said with some confidence the Government is handling things well.

Let alone what the IMF may or may not feel, the condition on the ground is that the RBI has failed in its effort to monitor the happenings in the banking sector. For Governor Dr. Urjit Patel to say that the RBI has no powers to do things, is something uncalled for. When the public sector banks were getting afflicted with cancerous frauds, the RBI had to step in and stem the rot. It did step in, but only when a national clamour went up in that favour. The Government has every right to question not the motives of the RBI but its motions. That is what the Government is doing, and the IMF should know this.