Advice and dissent

I listened to Dr. Y.V. Reddy’s interview by Latha Venkatesh at CNBC-TV18. That was a very forthright interview. I listened to it fully and I went through the transcript.

I think what he was saying – or, rather did not say explicitly – was that the government attitude (across political parties) towards RBI is confusing and contradictory.

On the one hand, monetary policy has been given an exalted status (“The recent emphasis appeared as though monetary policy is the main function.”)

So, when it comes to accountability, it is being held accountable only for monetary policy whereas, in reality, it is a ‘full-service central bank’.

At the same time, when it comes to appointments, it is being now treated as yet another regulator.

So, there is contradiction and confusion in the political system as to how to treat RBI. I agree that it is a national problem. May be, the Finance Ministry Mandarins are one of the originators of the confusion, in their ongoing turf battle with RBI. Just guessing.

We will have to wait for Dr. Y.V. Reddy’s memoirs. His autobiography has come out in Telugu. The interview was in the context of the release of his autobiography in Telugu.

Some of my friends have seen some significance in the timing of the interview. Well ,it may just be a coincidence that his Telugu autobiography came out just now.

He told the interviewer that he took a demotion (sort of) to become a RBI Deputy Governor and that he would not do it now, because he said that the informal protocol that existed between the government and the RBI in terms of relative stature of the RBI Governor and the Deputy Governor has been eroded over the years.

He also said that the title of his memoirs coming out in English in a few months is titled, ‘Advice and Dissent’. In that context, he said the following:

Question: Why is your book in Telugu? We are all students of public finance and we are so eager to read, why did you write it in Telugu?

Answer: First of all, let me correct. It is autobiography more than memoirs, and it is in Telugu. My memoirs, in the sense of dealing with policy, policy issues, that will be in English to satisfy people. And it will come in the next 3-4 months. I must also tell you the title. It is being published by HarperCollins. The title is, ‘Advice and Dissent’. I believe, in my life in policy making, because all my life, and that is what comes out that I think for a civil servant or an economist, it is his right to advise and its obligation to dissent, if you feel strongly, not just end with advice. So, that is how I would sum up. [Link]

His responses on the current status of the RBI vs. the Government and the above response on dissent have been interpreted in the current context of demonetisation and the RBI’s allegedly meek and submissive attitude towards the government.

His reference to the comments by Standard & Poor’s on RBI’s credibility seemed to indicate that he was critical of RBI’s conduct in recent months:

I would even go to the extent of saying that particularly recent events, I have seen the comments from the economists, from Standard and Poor and they are disturbing. For the RBI, for a central bank, reputational risk is the worst risk. Credibility is the worst risk. And if this is happening in the international opinion, I would say that it is a national problem now and it is not just a political issue.

However, the following comment seems to suggest that he was talking about the damage caused to RBI’s institutional independence by the Financial Sector Legislative Reforms Commission:

The old framework, whatever the background, which committee, which commission, which judge produced it, we need not go into it. The limited point is, the role of central bank in our economy is under threat and it is a national problem which has to be addressed as a national problem.

TCA Srinivasa Raghavan had provided an English translation of his article for Bloomberg Quint. A small excerpt:

There is a general feeling now that the Reserve Bank of India (RBI) has been diminished in stature. Two former governors have said so. And a Nobel Laureate, Amartya Sen, has said that Mr Modi makes all the decisions, not the RBI.

The governors are right. The RBI has indeed lost its pre-eminence. But, Amartya Sen is not. From 1937 onward the big decisions have always made by the government. Nothing has changed.

So, one can go on discussing whether the former Governor meant this or that. As with beauty, lot of things are in the eyes of the beholder. I personally think that his comments are more with respect to recent history rather than recent events.

(A brief news-story in Reuters on the S&P reference to RBI here).

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