Money & Banking
How to restructure Reserve Bank of India
Perhaps the government could consider setting up a statutory body to initially handle management of surplus funds, borrowings of public sector organisations and management of state government borrowings. Over time, this body may relieve RBI from public debt management responsibilities
As Reserve Bank of India (RBI) Governor and Finance Minister are on the same page with regard to having an independent Public Debt Management Agency. Therefore, perhaps the government could consider setting up a statutory body to initially handle management of surplus funds and borrowings of public sector organisations, management of state government borrowings (now being handled now by RBI on an agency basis (Section 21A of RBI Act) and such other responsibilities it may entrust to that organisation.  As the organisation grows, it can help in building a retail market for government securities and gradually relieve RBI of public debt management responsibilities.
A newspaper report on 23 March 2015, on a presentation on the constitution of Monetary Policy Panel, which will come into being pursuant to the signing of the land mark Monetary Policy Framework Agreement (relating to inflation targeting), made by Finance Minister Arun Jaitley to the Reserve Bank of India (RBI)’s Central Board, opens with the following assertion:
“Differences emerged on Sunday between the Reserve Bank and the Finance Ministry over the structure of a committee that will set interest rates and take monetary policy decisions-instead of the central bank’s Governor.”
As several crucial policy issues were dodged during the past 10 years or so, broadly due to compulsions of coalition politics, there is a hurried rushing through of announcement of intentions by government and bodies responsible for implementation of government policy. Therefore, government should be extra-cautious to ensure that such hurry does not end up in destabilising existing institutions like RBI. For example, the Narendra Modi-led union government should not avoid revisiting half-baked recommendations of Financial Sector Legislative Reforms Commission (FSLRC) before rushing through implementation.
The shrewd Finance Minister has quickly got over the situation by forthright denial of any rift between North Block and Mint Road and committing that ‘Until RBI Act is amended, (RBI) Governor will take decisions’. Those who find happiness in fuelling friction may interpret this as a threat to RBI that ‘Fall in line else we have legislative powers to make you obey’. Such interpretations also will get currency because of the way in which several measures were taken during the pre-16 May 2014 days.
Back to the subject, the need for comprehensive changes in the Reserve Bank of India Act, 1934 had been foreseen by the writers of the Act who included the following clauses in the Preamble of the Act:
“And Whereas in the present disorganisation of the monetary systems of the world it is not possible to determine what is suitable as a permanent basis for the Indian monetary system; But Whereas it is expedient to make temporary provision on the basis of the existing monetary system, and to leave the question of the monetary standard best suited to India to be considered when the international monetary position has become sufficiently clear and stable to make it possible to frame permanent measures.”
Differences of views on the subject between RBI and the government should be seen in this context and should not be seen as ‘rift’, which will only divert attention from the main issue of making improvements in the monetary policy implementation architecture.
A god-sent opportunity for such a review was brushed aside by the FSLRC, which opted to re-invent structures and legislative instruments to help out a government from embarrassment caused by a weak Finance Ministry (not a weak Finance Minister) not equipped to argue its cases sensibly with statutory bodies and corporates. 
Public Debt Management Agency
Intentions behind the proposal for an independent Public Debt Management Agency ‘outside’ RBI and government may be noble. But ultimately, as the agency will have to handle ‘debt’, which is dependent on credibility and clout of the borrower, for the moment, it is better to continue status quo. Every time a new initiative or decision is taken affecting financial sector, we have a legacy of vested interests trying to tilt the decision in their favour by putting a wedge between the government and the RBI. It is comforting to see that the present RBI Governor and Finance Minister have understood the game and are working in tandem.
For several reasons, it would be expedient to allow RBI to continue public debt management at least for another decade. One, there is no retail market for government securities and therefore government borrowing is dependent on commercial banks (which are mandated to maintain a certain percentage of their assets in ‘cash, gold or unencumbered approved securities’) and financial institutions. Two, the Reserve Bank has been managing public debt for several years well and this has helped the institution develop in-house expertise and skill which cannot be easily ‘transferred’ to a new organisation. Three, there is no guarantee that a new agency will be in apposition to function independent of the government and the RBI for reasons One and Two!
Since the RBI Governor and Finance Minister are on the same page in regard to having an independent Public Debt management Agency, perhaps the government could consider setting up a statutory body to initially handle management of surplus funds and borrowings of public sector organisations, management of state government borrowings (now being handled now by RBI on an agency basis (Section 21A of RBI Act) and such other responsibilities it may entrust to that organisation.  As the organisation grows, it can help in building a retail market for government securities and gradually relieve RBI of Public debt management responsibilities.
(MG Warrier is former general manager, RBI, Mumbai and author of the 2014 book “Banking, Reforms & Corruption: Development Issues in 21st Century India”.)



Gopalakrishnan Krishnan

2 years ago

The existing set up is perfectly alright.Taking away RBI's powers one by one is not in the interests of the economy or the institution. Public Debt management should continue with RBI as long as the economy remains weak and the dependence of the Government on borrowed funds cannot be minimized. RBI's influence on monetary policy is also getting weakened with the proposed setting up of a Monetary Policy Committee as designed by the Government.Further, if inflation targeting is going to be the responsibility of RBI, if it does not have any say in public debt management, RBI cannot do full justice to regulate inflation and the Government will dominate the debt market in its own way leaving RBI a good for nothing Institution like any other body of the Government.RBI has earned a name, reputation and recognition nationally and internationally despite having no independent autonomy and it should not be allowed to be destroyed for some short term political gains. The Economy needs a very strong institution to command respect of the whole world and support for balanced economic development and for this RBI needs to be strengthened, made more powerful with full autonomy. Governments will change every now and then but Institutions like RBI provides the continuity of progressive economic policies and brings stability and soundness to the economy which are essential in these days of globalization.


MG Warrier

In Reply to Gopalakrishnan Krishnan 2 years ago

Very true. We should also remember the uniqueness of RBI in regard to the role expectations since inception and the evolution of the central bank to its prestigious position. to quote from history:
“On the occasion of the inauguration of the Bank, the Secretary of State for India sent the following message to the Governor:
As Reserve Bank commences active operations today I take opportunity to convey to you and your colleagues on the Board my most cordial good wishes and to express my confidence that this great undertaking will contribute largely to the economic well-being of India and of its people.
Replying on behalf of the Deputy Governors, the Board and himself, the Governor assured the Secretary of State,
That their utmost endeavour will be to promote the economic well-being of India and thereby completely justify the institution of the Reserve bank of India”
RBI has so far lived upto the expectations expressed in so many words on April 1, 1935.

Lee Kuan Yew: Visionary and icon of Asian politics (Obituary)
Lee Kuan Yew, the first prime minister of Singapore, and one of the most influential political figures in Asia died here on Monday after a prolonged battle with pneumonia.
Born on September 16, 1923, he was widely considered as the father of the modern day Singapore and the leader who made the island nation the most prosperous in Southeast Asia.
Lee was born into a wealthy Chinese family that had lived in Singapore since the 19th century. He did his schooling in Singapore before studying law in the University of Cambridge in Britain. In 1950, Lee was admitted to the English bar, but chose to return to Singapore, instead of pursuing a career in Britain.
While in Britain, Lee embraced the ideology of socialism. In the early 1950s, he allied with individuals like David Saul Marshall and Lim Yew Hock and raised the pitch for a constitutional reform in the country.
Singapore, at that time, was a British colony and housed Britain’s principal naval base in East Asia. The country was ruled by a governor and a legislative council mostly comprising wealthy Chinese businessmen, who were appointed rather than being elected.
Lee took it upon himself to challenge the hold of the businessmen in the legislative council. However, he soon adopted a more radical stance and parted ways from his allies. In 1954, he floated the People’s Action Party (PAP).
In the subsequent legislative council elections, the PAP won three seats.
In 1956, Lee returned to London as a member of a Singaporean delegation that unsuccessfully sought self-rule for the colony.
Unrest in Singapore followed, during which a number of PAP leaders were imprisoned.
In the following year, negotiations in London resumed, again with Lee on the delegation. After an agreement was reached on a measure of self-government, Lee won a by-election in Singapore by an overwhelming majority.
The next year in London, Lee helped negotiate the status of a self-governing state within the Commonwealth for Singapore.
Elections were held under Singapore’s new constitution in May 1959, and Lee called for social reforms and eventual union with the erstwhile Federation of Malaya.
Lee’s party won a decisive victory, gaining 43 of the 51 seats, but Lee refused to form a government until the British freed the left-wing members of his party who had been imprisoned in 1956. After their release, Lee was sworn in as prime minister on June 5, 1959, and he formed a cabinet.
He introduced a five-year plan calling for slum clearance and the building of new public housing, the emancipation of women, the expansion of educational services, and industrialisation.
In 1962, Lee led Singapore into a merger with Malaysia, but three years later, Singapore left the union. Lee resigned as prime minister in 1990.
Lee recognised that Singapore needed a strong economy in order to survive as an independent country, and launched a programme to industrialise Singapore and transform it into a major exporter of finished goods. He encouraged foreign investment and secured agreements between labour unions and business management, thereby ensuring labour peace and a rising standard of living for workers.
Lee’s successor as prime minister, Goh Chok Tong, named Lee to the cabinet position of senior minister, from which he continued to exercise considerable influence. Upon Goh’s resignation as prime minister in 2004, he was succeeded by Lee’s son Lee Hsien Loong.
Lee Kuan Yew remained in the cabinet as “minister mentor”, a position he held until 2011, when he finally stepped down from the cabinet. He continued to hold his seat in Parliament, however, being re-elected in 1991, 1997, 2001, 2006, and 2011.
Lee's death signals an end of an era and leaves a huge void in Singaporean politics.


Slow Mutation

Right thinking doctors must get together


Things are changing slowly. On 22nd February, The Times of India had a report of the frustrations of 78 doctors in and around Pune. This is a good sign and an encouragement for people like me who have been fighting for this for four decades now. It was a coincidence that, on the same day, there was a report from London about how drug companies are fooling the medical world about the wrong drugs, to make money. The drug in question is the infamous statin. A few days ago, there was a report on the wrong nutrition advice given by the American science for more than 40 years. In 1968, I had warned the public about the dangers of fat-free diets and avoiding the best fat in the world—coconut oil. Now, they say coconut oil is a panacea for most human ills! All this makes me happy as I have been able to witness the truth coming out, slowly but steadily. I have written books, thousands of articles, in general interest magazines and scientific journals, and delivering hundreds of talks, since the 1960s, on the right approach to healthcare. 
The problem is much more complicated than simply of a clear conscience. It was nearly 90 years ago that some rich people in America saw the potential of producing chemical compounds from naphtha to control human illnesses—a very dangerous idea, based on the wrong premise that the human body is like a machine built by putting organs together. They worked their way through the then US government to get the medical colleges there audited for the authenticity of this idea. This greedy conglomerate was funding about 47 of the nearly 250-odd medical schools then. They had their staff on the governing boards of those colleges. They had one of their own retired staff, Abraham Flexner (a retired school headmaster) as a one-man commission. He declared only those 47 to be authentic and scientific medical institutions and the rest as bogus! Thus was born the era of chemical drugs which rule the roost even to this day. 
A recent study by Douglas C Wallace showed that all chemical reductionist molecules are rejected by the body and are sent to the liver for destruction while herbal drugs are recognised as self and used! Indian Ayurveda and many other systems have been in existence for times immemorial but were defamed by the infamous 1910 Flexner report.
The same is the story with other interventions. One glaring example will suffice. Coronary angioplasty is an effort which is not only a waste but could even lead to death of the patient! Except in rare cases of intractable chest pain and extreme reduction in heart’s function, there is no necessity for even coronary bypass surgery. Over-investigation and over-diagnosis are other ways of disease mongering. All in all, the hapless patient is in for expensive journey through our system. 
The whole of Western medicine is flawed as the human body works, as a whole, in consonance with its environment; not as a machine. When we use chemicals as drugs, we make it still more difficult for the body to recover from any disease. This needs to be incorporated into the medical education field to control runaway economic disaster. Today, private medicine has become a corporate monstrosity. But we, doctors, are either unaware of this or do not want to know it, since the change might break our rice bowl!
Right thinking doctors must come together to debate all these areas and come to a consensus on how to tackle these complicated issues. We must remember that a doctor is basically trained to look after the health of the public. We do very little by way of preserving human health. We have become sickness managers. 
“The FDA protects the big drug companies, and is subsequently rewarded, and using the government’s police powers, they attack those who threaten the big drug companies.  People think that the FDA is protecting them. It isn’t. What the FDA is doing, and what the public thinks it is doing are as different as night and day.”— Dr Herbert Ley, former commissioner of the US FDA 
(Professor Dr BM Hegde, a Padma Bhushan awardee in 2010, is an MD, PhD, FRCP (London, Edinburgh, Glasgow & Dublin), FACC and FAMS.)


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