Why should the officers of the Indian Revenue Services, Accounts and Audit services who keep juggling macroeconomic facts and figures – all their lives -- never get a chance to reach the top? Imagine the drudgery and quandary of these services when the highest level a man can ever reach is Executive Director but always leave the top-most chair empty for the Governor – who is always an outsider
By Neeraj Mahajan
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| Raghuram Rajan |
Is
it better to be selected or promoted—this is the new debate inside RBI?
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| D. Subbarao |
As Raghuram
Rajan prepares to step into the shoes of D. Subbarao’s –at the fag-end of his
five year term which comes to an end on September 4, 2013. This will be yet
another instance in the last six decades when an outsider is going to take over
the reins of from the insiders who spend their entire life working for the
Central bank but never get a chance to break the glass ceiling.
If
Reserve Bank of India (RBI) is the Central Bank of India then why should the
highly qualified officers (M.Phil, Ph.D, MBA or Chartered/ Cost Accountant,
Company Secretary) selected by the Reserve Bank of India Services Board or
professional bankers never get a chance to head it? Why should the officers of
the Indian Revenue Services, Accounts and Audit services who keep juggling
macroeconomic facts and figures – all their lives -- never get a chance to
reach the top? Imagine the drudgery and quandary of these services when the highest
level a man can ever reach is Executive Director but always leave the top-most
chair empty for the Governor – who is always an outsider. He may be an
economist, academic, career bureaucrat or banker – but never professional RBI
officers – having the latest banking and monetary trends – in India or abroad,
on their tips. Though the RBI follows an in house promotion policy, where all
staff persons are promoted internally—this does not apply to the topmost jobs.
You may be the most capable person but you cannot become Deputy Governor or
Governor – who are not promoted but selected by the government. |
| Exterior of Bank of England |
 |
| Mark Carney-
world’s most powerful central banker. |
India on the other hand does not have a formal
process of promoting or selecting and RBI Governor. There is no search
committee, no list of eligible and deserving candidates and the Prime
Minister’s Office (PMO) decides on the governor with or without the inputs from
the finance ministry or outgoing governor. It is a political decision – to
match the convenience of the ruling party and corporate houses too try to
influence the decision.
At
the time of independence Sir Chintaman Deshmukh the first Indian Governor of
Reserve Bank, not only presided over RBI’s transition from the British rule but
also division of assets and liabilities between India and Pakistan. During his
tenure RBI was nationalized and transformed from a shareholder’s institution to
a State owned organization. Today Reserve Bank has become a department of the
government of India and a post retirement option for rewarding tired and worn
out bureaucrats. Any government wants a RBI Governor -- without a mind of his
own-- who can be his master’s voice.
 |
| Indira Gandhi |
This
trend started in the 60s when Indira Gandhi nationalized 14 major commercial
banks without even
consulting Lakshmi Kant Jha- an accomplished 1937 batch
civil servant. Familiarity as they say breeds content, she knew he wouldn’t
mind because he had served as Secretary to the Prime Minister prior to taking
over as the eighth Governor of RBI. His successor B. N. Adarkar an economist
had been Economic Adviser and Deputy Governor of RBI before heading RBI for 42
days. He is one of those unfortunate ones like K G Ambegaonkar who never got to
sign any currency note. His successor Sarukkai Jagannathan, ICS, a product of
Presidency College, Madras was Executive Director at the World Bank. His
signature can be seen on Rs 20 and Rs 50 denomination currency notes. N. C. Sen
Gupta who followed him was Secretary, Department of Banking, Ministry of
Finance but remained Governor for just four months. Before he left, he put his
sign on 1000 rupee note. Like him K. R. Puri a former Chairman and Managing
Director of LIC was the only other governor to sign a 1000 rupee note.
Strangely none of the 22 Governors in RBI
have been women. Maidavolu Narasimham—the 13th CEO was the first Reserve Bank
cadre officer to reach the very top. He joined RBI as a Research Officer in
Economic Department and served as Additional Secretary, Department of Economic
Affairs and Secretary, Ministry of Finance before taking over as Governor RBI
for a short stint of seven months. Later he served as Executive Director at
World Bank and International Monetary Fund and was awarded Padma Vibhushan in
2000.
Apart
from him the trio-- K. J. Ubesi, Shyama Gopimath and Usha Thorat brought in a
whiff of fresh air and
 |
| Usha Thorat |
did RBI proud. K. J. Ubesi became the first female
Deputy Governor of the Reserve Bank, followed by Shyama Gopimath (second) and
Usha Thorat (third). Besides being the only three women to occupy the deputy
governor’s office– Ubesi, Gopimath and Thorat along with Narasimham – were
in-house RBI officers who managed to bypass the hierarchical obstacle. KJ
Udeshi who replaced GP Muniappan, joined RBI in 1965 and rose to Executive
director level in 2001. She handled exchange control, internal administration
and human resources departments. A post-graduate in Economics, diploma holder
from the National Institute of Bank Management and a Certificated Associate of
the Indian Institute of Bankers (CAIIB), she was co-chairperson on sub-group on
banking and finance and left her mark in forex management. Like her Shyamala
Gopinath a master degree in commerce, and Certified Associate of Indian
Institute of Banking and Finance joined RBI in 1972 and worked in various
capacities including deputation to IMF before taking over as Executive Director
and later deputy governor RBI. She is now Chairperson Advisory Board on Bank,
Commercial and Financial Fraud—a set up for probing bank, commercial and
financial frauds after retirement. Lastly Usha Thorat, an alumnus of Lady Shri
Ram College for Women and Delhi School of Economics was one of the key players
behind RBI efforts towards financial Inclusion, banking regulation and currency
management.
Dr.
IG Patel– a distinguished economist turned civil servant was Secretary,
Ministry of Finance before shifting to RBI and after retirement became
Director, London School of Economics and Political Science. He played a crucial
role in negotiating IMF assistance to tide over the balance of payments
constraints in 1981. P. V. Narasimha Rao reportedly wanted him to be his
finance minister but Patel refused.
Still
this didn’t stop Rao from conferring Padma Vibhushan for his contribution to
economics. Rs 1000, Rs 5000 and Rs 10,000 denomination currency notes were
released during his tenure. His successor Manmohan Singh an economics graduate
from Punjab University, Cambridge and the Oxford University remained Governor
of RBI for three years but unlike most others his career graph only went up and
up since the RBI days. Singh went on to become Deputy Chairman of Planning
Commission, Finance Minister, Rajya Sabha MP from Assam and the Prime Minister
of India. As Rao’s finance minister, Singh spearheaded Indian economic reforms
and end of infamous Licence Raj. His successor Amitav Ghosh a former chairman
of Allahabad Bank and Deputy Governor of RBI since 1982 – his stint of 20 days
was the shortest tenure ever served by any RBI governor. In contrast Sir
Benegal Rama Rau had the longest tenure as Governor of the RBI. He resigned
just before the expiry of his second extended term, due differences with the
then Finance Minister.
Dr.
R.N. Malhotra, served as RBI Governor during Rajeev Gandhi years. A member of
the Indian Administrative Services, he had been Secretary, Finance and
Executive Director of IMF before occupying the RBI Governor’s Central Office.
He left his mark on the 500-rupee note. S. Venkitaramanan who followed him was
a Master's degree in Physics from University of Kerala and Master's Degree in
Industrial Administration from Carnegie Mellon University, Pittsburg, USA. He
had no major economic credentials but by virtue of being and IAS and former
Finance Secretary and adviser to Government of Karnataka he was asked to take
over as CEO of RBI. Venkitaramanan had to bear the brunt of India’s deepest
balance of payments crisis in 1991. His successor Dr. Chakravarthi Rangarajan a
distinguished economist who taught at University of Pennsylvania and IIM-A was
awarded Padma Vibhushan India's second highest civilian award. After demitting
office he served as Governor of Andhra Pradesh, Orissa and Tamil Nadu, Chairman
of the Twelfth Finance Commission. Chairman of Prime Minister's Economic
Advisory Council o the Chairman of the Madras School of Economics, Chennai and
nominated as a member of the Rajya Sabha. Though he resigned as Chairman of
PM’s Economic Advisory Council, he was re-appointed to the post. His successor Dr Bimal Jalan was the Chief
Economic Adviser, Banking Secretary and on the Central Board of Directors of
RBI as the Finance Secretary, Ministry of Finance. He has also been Chairman of
the Economic Advisory Council to the Prime Minister and served as Executive
Director of International Monetary Fund, World Bank and Member-Secretary,
Planning Commission before going on to head the RBI. Another Rupee 1000 note
was introduced during his tenure. He helped to steer India safely through the
Asian economic Crisis and strengthening of the balance of payments position. His
successor was Dr. Yaga Venugopal Reddy, a 1964 batch IAS officer – who took
over when Jaswant Singh was India's Finance Minister. He quit as deputy
governor of RBI to join as Executive Director, International Monetary Fund and
prior to joining the IAS used to work as a visiting faculty member at Osmania
University, Administrative Staff College of India and London School of
Economics. He has held the positions of Secretary (Banking) in Ministry of
Finance and Principal Secretary in Government of Andhra Pradesh.
The
incumbent Duvvuri Subbarao is a 1972 batch IAS officer of Andhra Pradesh cadre
from Eluru, a small town near Vijayawada, Andhra Pradesh. He is a Physics
graduate from IIT Kharagpur (Director's Gold Medal) and M.Sc in Physics from
IIT Kanpur. He topped the IAS examination in 1972 and joined in the Andhra
Pradesh cadre. He later received a Ph.D. in Economics from Andhra
University.
A
closer introspection reveals that S. Venkitaramanan and the current RBI
Chairman Duvvuri Subbarao have been studied Physics. Subbarao incidentally is
one of the first IITians to head the RBI. More than 63 % i.e. 14 out of 22 RBI
Governors-- Sir James Braid Taylor, C D Deshmukh, Benegal Rama Rau, K. G.
Ambegaokar, H V R Iengar, L K Jha, S Jagannathan, N C Sen Gupta, Dr. I G Patel,
R.N. Malhotra, S Venkitaramanan, Dr. Bimal Jalan, Dr. Yaga Venugopal Reddy and
Dr. D. Subbarao have been IAS officers. Almost seven of them –had served as
Banking Secretaries. Atleast two of them
Bimal Jalan and Dr. D. Subbarao had been part of the Economic Advisory Council
to the Prime Minister while the first ICS to become RBI Governor Sir James
Braid Taylor had been an additional secretary in Ministry of Finance. N C Sen
Gupta had been Secretary, Department of Banking while L K Jha’s claim to fame
was that he had served as Secretary to the Prime Minister.
As
far as others are concerned M Narasimham was the only RBI officer ever to be
promoted as RBI Governor. P C Bhattacharya was the only Indian Audit Service
officer but then he had also served as Secretary Finance Ministry and Chairman
of SBI. Sir Osborne Smith, K R Puri and A Ghosh were the only professional
bankers to be vertically integrated. Dr. C Rangarajan, Dr Manmohan Singh and B
N Adarkar – were the only economists. But then even the decision to appoint
them does not appear to be purely for their economic soundness but the fact
that Adarkar had served as Economic Adviser Government of India as well as Ministry
of Commerce & Industry while Manmohan Singh had been Secretary Finance as
well as Member Secretary of the Planning Commission. Of all RBI Governors so
far Dr Bimal Jalan, on the face of it had the heavy weight credentials having
served as Banking Secretary, Finance Secretary, Member Secretary to Planning
Commission and Chairman, Economic Advisory Council to Prime Minister.
This
brings us to the question about the role played by the RBI Governor? Does he
ever get to use the powers that he is given in the constitution? What is the
use and purpose of an institution like the RBI if it is not allowed to function
independently? Politicization of RBI stated way back in 1957 when Sir Benegal
Rama Rau resigned before his second extended term of office expired due to
differences with the Finance Minister, today it has reached a level where the
government is publically using pressure tactics to push the RBI governor in
corner prevent him from independently discharging his duties. According to
sources in the recent past there has been occasions when North Block has tried
to snub the RBI Governor by summoning and trying to deal directly with his
Deputy Governors. “This is a wrong precedence they are setting,” they said.
Significantly
a day ahead of RBI's monetary policy review, Finance Minister P Chidambaram
could not restrain himself from claiming publically that the central bank’s
mandate is not only to ensure price stability but also to promote growth and
generate employment. He openly stated that he did not expect any hike in
interest rates of the commercial banks. Significantly there is a wide gap
between Chidambaram’s understanding of RBI’s mandate and Governor D Subbarao
who maintains, “RBI's mandate is to maintain prices and financial stability and
includes macro and micro-prudential regulation"
The
bone of contention is that the RBI has raised interest rates and vowed to
battle price pressures even at the cost of sacrificing short-term growth, while
the government may want a strong growth to increase social spending and keep
fiscal deficit in check. This however does not go down well with Dr Subbarao
who is said to believe that, the central bank should be frees from pressure of
responding to short-term developments which make it deviate from its long term
and medium term goals.
In
light of this Chidambaram’s public remarks after the RBI Governor met him and
PM Manmohan Singh to discuss the macro-economic situation – amounts to
dictating terms to RBI on what it should or what it should not do. “This antagonism
between central bank and government is very functional antagonism, a healthy
antagonism. I am not saying it is unhealthy, it is perhaps healthy",
Chidambaram was quoted as saying.
Separately
RBI Governor D Subbarao was quoted pitching for greater autonomy for central
banks to function independently in order to serve the economies better.
"Economies will be best served if governments ensure that their central
banks are able to conduct monetary policy independently and free of fiscal
compulsions. This will require, among other things, responsible and credible
fiscal consolidation," he in a speech at the European Economic and
Financial Centre.
Going
by past experience even though RBI has been a favored destination for finance
ministry officials, bureaucrat in the finance ministry have not liked RBI
taking an independent stand at variance with the ministry. Invariably this
results in attempts to but the central bank down to size. And to do that what
could be a better way than to cut short the tenure of its most competent and
independent minded officers who dare to speak their mind. This in fact is the
reason why Manmohan Singh’s successor Amitav Ghosh – a former chairman of
Allahabad Bank lasted only 20 days while Deputy Governors Usha Thorat and Subir
Gokarn were not granted extension. The unfortunate reality that emerges is that
RBI is not constitutionally independent and the government always has the
capacity to pull strings because of the fact that it appoints the governor and
his four deputies. This is a very important factor as most policy level
decisions are taken by Reserve Bank's Board of Directors, consisting of
fourteen non-executive, independent directors nominated by the Government,
Governor and four Deputy Governors. By virtue of its powers to award, reward
and appoint the Government had an edge to manipulate policy.
Being
a central banker is a thankless job. As Duvvuri Subbarao said in a speech at
the SAARC Finance Governors' symposium, “It is important for the government and
the regulators in India to develop conventions and practices which will serve
the goal of preserving financial stability without eroding the autonomy of the
regulators."
Preserving
financial stability requires coordination among regulators, and between
regulators and governments; it is generally acknowledged that these
coordination mechanisms, especially as between the government and the
regulators, must function in ways that do not compromise the autonomy of the
regulators," he said.
Not
just Finance Minister P Chidambaram, but even his predecessor, Pranab Mukherjee
demanded interest rate cuts from the RBI despite the damage caused to the
economy and investor confidence. Even in the past clashes have taken place
between the RBI governor Y.V. Reddy who was “fiercely independent and finance
Minister P. Chidambaram over monetary policy.
In a
way by denying extension to Gokarn the government seems to have sent a message
to Governor Subbarao whose second term ends in September this year to behave
like a “good” bureaucrat and toe the line and expect a sweatner in the end or
make a noise and be shown the door. Gokarn’s successor, Urjit Patel, has been
given only two-years instead of a typical three-year term.
According
to informed sources the last thing India needs is a RBI dancing to the
governments tunes. A new RBI governor even an economist would need atleast six
months to understand the finer nuances and complexities of the national and
international and before he even settles down its time to go. The RBI’s role is
to work out an appropriate monetary policy for the economy instead of the party
in power or politicians.
But
this does not prevent some vested interests to demand a truncated central bank
with virtually no say in the non-bank financial sector, government securities
and foreign exchange market. If and when this happens the RBI might lose its
say in managing the exchange rate, forex reserve, and government debt
management. For this purpose a separate Debt Management Office (DMO)
independent of the RBI, is being demanded under the administrative control of
North Block.
The
saddest part of the story is that even the RBI Act does not empower the RBI to take
up a firm stand against the government pressures. It clearly states, “The
Central Government may from time to time give such directions to the Bank as it
may, after consultation with the Governor of the Bank, consider necessary in
the public interest.” This gives the government a legal right to give a whack
on the central bank’s bottom—whenever it find the RBI growing too big for its
boots.
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