The decision of Dr Raghuram Rajan not to continue or seek second term as governor of Reserve Bank of India (RBI) has finally ended months of speculations. However, at the same time, the way this issue was being kept alive through media, brings some other important issue of reforms within the central bank, especially the casual approach in appointing the top executives.
We should better use this opportunity to go deeper into the legacy of the RBI, which has made its top management vulnerable to public criticism. It is time we had a re-look at our own casual approach to employment at top level, especially in organisations like RBI.
Allow me to quote a paragraph from Sir Thomas Munro’s 31 December 1824 observations appearing in East India Papers (Vol iii, London 1826, quoted in Economic History of India, Romesh Dutt, CIE) to open the discussion:
“Even if we could suppose that it were practicable without the aid of a single native to conduct the whole affairs of the country both in the higher and in all the subordinate offices, by means of Europeans, it ought not to be done, because it would be both politically and morally wrong. The great number of public offices in which the natives are employed is one of the strongest causes of their attachment to our Government. In proportion as we exclude them from these, we lose our hold on them, and were the exclusion entire, we should have their hatred in place of their attachment, their feelings would be communicated to the whole population, and to the native troops, and would excite a spirit of discontent too powerful for us to subdue or resist. But were it possible that they could submit silently and without opposition, the case would be worse, they would sink in character, they would lose the hope of public office and distinction all laudable ambition, and would degenerate into an indolent and abject race, incapable of any higher pursuit than the mere gratification of their appetites. It would certainly be more desirable that we should be expelled from the country altogether, than that the result of our system of government should be such a debasement of a whole people.”
I found the above thoughts relevant in the context of the treatment meted out to the staff of India’s central bank since its establishment on 1 April 1935 till date. At the time of establishment, the ruling British government did have vested interest in ensuring that the top management of RBI ‘obeyed’ the government. The constitution of the Bank’s central board and appointment of RBI Governor and his deputies took care of this objective. “Natives prohibited” approach in decision-making can be traced to this need. The irony is, even today, it is ensured that only two of the five top positions in RBI, including governor and four deputy governors, are held by those who joined the bank at lower levels. This top management is dependent on the team of executive directors (now their number is in two digits!) who are career central bankers with over 20 years of professional central banking experience with exposure to several work areas including trainings abroad.
All governors, without exception, have imbibed the institutional culture once they entered the sanctum sanctorum and have tried to protect the mandate contained in the preamble of the RBI Act 1934.
RBI, as an institution, has accepted external leadership at the top and for the RBI family, the presence of three to four 'outsiders' as Governor and his deputies was a matter of pride and confidence. These birds of passage have benefited by their stay at Mint Road, as much as the institution has gained from their leadership and guidance.
It may not be possible to change things overnight. Nevertheless, the need for change has to be understood. There is a practical side to the issue. In RBI, very few came as deputy governors at a young age and became governor later. Even the average incumbency of governors is low. Dr Rajan is the 23rd RBI governor and the institution has been in existence only for the last 81 years, making average stay less than four years. RBI, in a way, becomes a training establishment of sorts for top central banking professionals whose subsequent service is not available for the institution. Three things can be done to improve the situation:
Fairly good number of officers is being recruited at the second level of officers’ grade in RBI every year. By offering a reasonably market-related remuneration package, RBI can afford to recruit better talent at this level who, over time, can aspire to go to top positions.
Offer better terms for the positions of executive directors and above and, if necessary by increasing the number, keep some of these positions open for ‘direct’ recruitment from the open market including from officers at lower levels from within the bank. This will improve the availability of internal talent for higher positions.
Gradually, change the age profile of deputy governors, so that some of them can migrate to the highest level.
is a former General Manager, Reserve Bank of India and author of the 2014 book “Banking, Reforms & Corruption: Development Issues in 21st Century India".)