Institutional autonomy cannot mean the freedom to operate independently of the government. Rather, it is the freedom to deliver on mandates defined by the government and with consultation

Former Reserve Bank of India Governor D. Subbarao’s recently released account of his innings as RBI Governor — Who Moved My Interest Rate? Leading the Reserve Bank of India Through Five Turbulent Years — has stories of the run-ins he had with successive Finance Ministers. The media has been quick to lap up these stories.

We learn that the differences between the National Democratic Alliance government and the present RBI Governor are by no means novel. The United Progressive Alliance government behaved in exactly the same fashion. Both the Governors manfully stood up to the government and ended up paying a price for doing so — so we are told.

This is a theme that the media loves to play up from time to time: the Evil Politician pitted against the Wise and the Noble. The Upright Technocrat confronting the Lowliest of the Human Species. The media audience loves these stories because the majority would any day identify with professionals rather than with politicians. The former are People Like Us. As for politicians…. Ugh.

They made news

Alas, the reality is rather more nuanced. For politicians to leave matters entirely to technocrats isn’t really a sensible solution. We have come round to this realisation in many cases.

When T.N. Seshan socked political parties as Central Election Commissioner, he was lustily cheered. Until one day there was a sense that he was overdoing things and the political authority responded by having three Election Commissioners instead of one all-powerful CEC.

As Comptroller and Auditor General, Vinod Rai became something of an icon when he unveiled his reports on various “scams”. But the concept of “presumptive losses” that Mr. Rai propounded has had its fair share of sceptics. The concept seems to imply that government must always use the auction route to maximise revenues in the sale of natural resources. And yet, in 2012, the Supreme Court ruled that the government was not bound to use the auction route in every case.

There has been a clamour from time to time for the Central Bureau of Investigation (CBI) to be made independent of the government. In light of the facts that have come to light about Ranjit Sinha,the former CBI Director, and his handling of the coal mine allocation cases, we must wonder whether this is such a great idea.

The judiciary commands great respect among ordinary people. Yet, many people are uncomfortable with the notion that its independence includes leaving the appointment of judges entirely to the judiciary. In all these cases, we understand that autonomy has its limits.

Is there any reason a different logic should apply to the RBI? This is the central issue posed by what promises to be a refreshingly candid account by Mr. Subbarao of his years at the RBI. Mr. Subbarao writes, “There was constant and decidedly unhelpful friction between the ministry of finance, under both Pranab Mukherjee and later Chidambaram, and the Reserve Bank on what the government saw as the Reserve Bank’s unduly hawkish stance on interest rates, totally unmindful of growth concerns”.

Both Mr. Mukherjee and Mr. Chidambaram leaned on Mr. Subbarao to lower interest rates. Mr. Subbarao believes that Mr. Mukherjee and Mr. Chidambaram were wrong in seeking to sacrifice price stability at the altar of growth. He makes the point that there is no contradiction between price stability and growth.

Matter of judgment

Very true. But what constitutes price stability at a given point in time is a matter of judgment. Mr. Subbarao was operating in an era in which there was no inflation number that the government and the RBI had agreed on. That was to happen later in Raghuram Rajan’s time.

Mr. Mukherjee and Mr. Chidambaram were entitled to the view that a higher level of inflation was consistent with growth. And for them to have conveyed their views, however strongly, to the RBI Governor cannot be said to constitute interference with autonomy. Had either attempted to remove Mr. Subbarao from office for not falling in line, it would have been a different matter altogether.

Mr. Subbarao says that Mr. Mukherjee and Mr. Chidambaram did not stop with merely conveying their views. They made their displeasure known in other ways. At a G-20 dinner in Mexico, Mr. Chidambaram pointedly ignored Mr. Subbarao while greeting everybody else. Well, you could call it churlish behaviour but bosses express their displeasure in such ways all the time and in every organisation. Mr. Chidambaram has been gracious enough to write a generous endorsement for Mr. Subbarao’s book. This does indicate that Mr. Chidambaram’s snub was not personal, it was about making a larger point.

Mr. Subbarao says that the RBI paid a price for not toeing the ministers’ line in more material ways. Mr. Mukherjee refused to grant another term as Deputy Governor to Usha Thorat. Mr. Chidambaram did likewise with Subir Gokarn.

Mr. Subbarao concedes that the government has the power, under the law, to appoint deputy governors. However, he feels that the government should leave it to the Governor to choose his team. Maybe. But this does not mean that the government should go along with one particular candidate preferred by the Governor. There is a case for the government to select any one of three candidates proposed by a committee headed by the Governor. This is what happened when it came to selecting a successor to Mr. Gokarn. Nobody has faulted the choice of successor. In other words, people can legitimately differ on what constitutes autonomy in a given situation.

Mr. Subbarao’s basic message is well taken. It is important to safeguard autonomy in institutions such as the RBI, the Indian Institutes of Technology and the Indian Institutes of Management (IIM), etc. But autonomy must always be married to accountability. The government is accountable to Parliament and to the electorate. Whom are technocrats accountable to?

We will soon have a Monetary Policy Committee on which three out of six members will be government representatives. The other three members will be experts from outside. The government will define the medium-term inflation target. The RBI Governor will have to find ways to meet the target and explain any failure to do so. Thus, in respect of monetary policy, we have a framework for autonomy with accountability.

Autonomy and accountability

We need to put in place broader mechanisms for accountability for autonomous institutions in general. One way to do so is to subject them to oversight by Parliament. The Chairman of the U.S. Federal Reserve appears before the U.S. Congress and fields questions on a range of matters related to the Fed. It would be helpful to institute a similar mechanism in India for the RBI. Similarly, the IIM Bill, which seeks to cover the IIMs through an Act of Parliament, is a step in the right direction. Another way is to subject autonomous institutions to independent management audit every few years. These audits may be carried out by committees of eminent persons. The committees should interact with all stakeholders — the government, Members of Parliament, management, employees, customers and others — and document how the institution has fared in relation to its mandate. These documents should be placed in the public domain.

Institutional autonomy cannot mean the freedom to operate independently of the government. Rather, it is the freedom to deliver on mandates defined by the government and with due consultation with the government. When technocrats arrogate to themselves the right to decide on matters that fall within their ambit all by themselves, it is not autonomy, it is usurpation.

Former RBI Governor Y.V. Reddy is said to have once quipped, “The Reserve Bank is totally free within the limits set by the government.” That could well serve as a motto for all autonomous institutions.

T.T. Ram Mohan is a professor at IIM Ahmedabad. E-mail: ttr@iima.ac.in This article is based on reports and excerpts that have appeared in the media. The author has not had access to D. Subbarao’s book.

Date: 18-07-16

From plate to plough:

A thought for food

New FDI policy in food products is unlikely to be a game-changer by itself. Government must clear up the policy environment.

Written by Ashok Gulati , Smriti Verma

In a rather bold move on June 20, the Modi government opened several key sectors such as defence, pharmaceuticals, civil aviation and food products to 100 per cent foreign direct investment (FDI). The objective behind this FDI policy is to attract higher investments, better technologies in manufacturing, commerce, and the agri-food space to promote growth, jobs, and incomes of people. By allowing FDI in trade, including e-commerce, of food produced or manufactured in India (call it “Made in India”), government seems to be inching towards FDI in retail, albeit through the approval route, and only for “made in India” food. Although, it is somewhat puzzling that while large domestic retailers (like Big Bazaar) can sell imported food, foreign retailers won’t be permitted to do so under the new FDI policy. Imports need to be governed by trade policy and not retail policy. Nevertheless, FDI in food is a welcome move.

The key question is: How much difference can it make in promoting efficiency in food value chains? In this regard, it will be good to see what happened in the food processing sector when 100 per cent FDI was allowed through the automatic route. The answer in brief is that it attracted more FDI, though with much volatility: For instance, while in FY2011 FDI in food processing was $190 million, it jumped to $400 million in FY13 and to almost $4 billion in FY14, and then came down drastically to about $500 million in FY16.

The new FDI policy in trade for food can have a similar or even bigger impact by attracting big players like Walmart, Tesco, Amazon, Alibaba, etc. They can help build more competitive and inclusive value chains by investing in procurement, storage and distribution networks. Innovation lies in mainstreaming small holders on the procurement side and small kirana stores and vendors on the other side of these food value chains. But where are such players likely to invest? Business models would suggest investing where demand is growing fast, and good infrastructure is lacking, which leads to large wastages. This is the case of high-value perishable food, particularly, fruits and vegetables, milk, meat, fish, etc.

The economic worth of food so lost is estimated to be around Rs 92,651 crore. The new FDI policy can help reduce these losses but is unlikely to be a game-changer by itself — the government must change the rules of the game and clear up the policy environment holistically to attract FDI in much needed infrastructure.

Two major roadblocks are the Agricultural Produce Market Committee (APMC) Act and the Essential Commodities Act, which do not allow procuring directly from farmers in most states or holding large stocks by big corporations. This hampers their efficiency and dissuades them from large investments, defeating the very purpose of the FDI policy. This should encourage the policymakers to reform the APMC and ECA, for a magnified effect of the new FDI policy.

In any case, what are the emerging food demand trends in India in the recent past, say, between 2004-05 and 2011-12, which may attract FDI for building efficient value chains? Interestingly, Indians are progressively turning towards non-vegetarianism, and consuming more eggs, meat, and fish. The household consumption data of NSSO suggests that non-veggies have increased from 58.2 per cent in 2004-05 to 62.3 per cent in 2011-12. The rise in the meat-eating population has come mainly from poultry-meat eaters, that increased by about 68 per cent. The increase is not just in the number of people but also in the level of consumption — monthly per capita consumption of chicken has grown by a staggering 224 per cent compared to just 10.7 per cent in milk, 28.3 per cent in fish and 93 per cent in eggs between 2004-05 and 2011-12. Poultry is clearly the favourite meat among Indians. Interestingly, supply has also commensurately responded to the growing demand for poultry especially as they are beyond the purview of the APMC Act. The classic unorganised backyard production model has been mostly replaced by organised large-scale poultry farms rearing hundreds of thousands of birds. Still, the sale of poultry meat has remained confined to wet markets and open roadside slaughter houses. Processed chicken meat accounts for not more than 5-10 per cent of the total poultry meat production in the country. Apart from cultural biases, the absence of well-developed reliable cold-chains is to blame. Efficient value chains are the need of the hour.

The challenge is to bring in foreign investment in ways that help compress the value chain by taking on board small players both at the back-end and front-end. Dairy is leading by example where domestic cooperatives like AMUL and multinationals like Nestle have incorporated even small-holders into their model for procuring milk and local kirana stores for their distribution network. Having the same for fruit, vegetables and meat that are registering much higher growth in demand than dairy, needs a non-restrictive environment for foreign firms to function and scale up their operations many fold.

In China, e-commerce is growing fast and food is a major part of the business — about 45 million people are regularly buying foods online. Big e-commerce companies like Alibaba and JD Online are dedicated to rural expansion. Apart from the push of cost and convenience factors, direct procurement from producers and availability of sophisticated supply chains have enabled online sale of standardised and fresh food in China.

If India wants its FDI in food to deliver, it must clear up the institutional mess that regulations such as the APMC and ECA have created. To this effect, permitting FDI through the automatic route (rather than through approval) will be a much desired and well-awaited annexure to the new policy prescription. Efficient, integrated, well-developed and reliable value chains for high value perishable agri-commodities will reduce food losses and improve the stakes of small players in the value chain. It is high time India worked towards becoming not just an open economy but also a competitive and inclusive one.

Date: 19-07-16

Reform tribunals, don’t abolish them

The Prime Minister’s Office is reportedly assessing the functioning of tribunals. Tribunals were created to bring experitse and speed to dispute resolution. India has many tribunals that hear pleas against orders by sectoral regulators. Last year, a parliamentary standing committee had voiced concerns over the ‘sad state of affairs’ in tribunals, saying some of them were dysfunctional due to large-scale vacancies. Scrapping tribunals is not the answer. The judiciary is already over-burdened. Instead, the government must provide human and financial resources for tribunals to function effectively. A tribunal would serve to sum up the evidence and elucidate the principles and rules needed to evaluate the evidence, even if the tribunal’s finding goes for review at a high court or the Supreme Court.

It makes sense to have a sitting or retired judge of the Supreme Court or a high court on these tribunals, which, ideally should be multi-member bodies that contain domain experts as well. Regulators, whether in the financial sector or in telecom or energy, have wide-ranging powers, and their actions can impose a significant burden on regulated entities. Rightly, the Financial Sector Legislative Reforms Commission had said the rule of law requires that a clear judicial process be available to persons who seek to challenge regulatory actions. The tribunals offer the first opportunity of appeal. The Securities Appellate Tribunal, for example, hears pleas against orders by the capital market, insurance and pension regulators. The PMO’s energies would be better spent on pushing legislation to make regulators accountable to Parliament, to enable them to function independently. Structured interactions and periodic reporting will enable Parliament to review regulatory actions and raise investor comfort.

Do tribunals fail to ease the burden on the higher judiciary? The apex court can lighten its burden by refusing to hear cases that do not raise questions of legal principle or of fundamental rights. The high courts can benefit from the tribunals’s expert rulings.

Date: 18-07-16

केद्र-राज्य सम्बन्ध

अरसे बाद अंतरराज्यीय परिषद की बैठक में खासकर विपक्ष शासित राज्यों से जैसी तीखी आवाज उठी है। ये आवाजें केंद्र में सत्तासीन भाजपा की धुर विरोधी पार्टियों के शासन वाले राज्यों से ही नहीं, बल्कि उसके एनडीए सहयोगियों ने भी बुलंद कीं। राज्यपाल-पद को ही खत्म करने की बिहार के मुख्यमंत्री नीतीश कुमार को जोरदार समर्थन तमिलनाडु से भी मिला। पंजाब के उप-मुख्यमंत्री सुखबीर सिंह बादल ने यहां तक कह दिया कि केंद्र राज्यों को ‘‘भिखारी’ बनाकर छोड़ना चाहता है। वह ढ़ेरों मामले राज्यों की सूची से हटाकर समवर्त्ती सूची और उसके बाद केंद्रीय सूची में डालता जा रहा है। दिल्ली के मुख्यमंत्री केजरीवाल के बोल तो उम्मीद के मुताबिक और तीखे थे। ऐसे माहौल में प्रधानमंत्री और गृह मंत्री की आतंकवाद से लड़ने के लिए राज्यों से अधिक सहयोग और खुफिया सूचनाएं साझा करने की अपील पता नहीं कितना मायने रखेगी? होना तो यह चाहिए था कि केंद्र राज्यों की आशंकाओं को दूर करने का आश्वासन देकर देश की संघीय पण्राली को मजबूत बनाने की कोशिश करता। लेकिन हाल में अरुणाचल प्रदेश और उससे पहले उत्तराखंड के मामले में निर्वाचित सरकारों को गिराने की अपनी कोशिश में सुप्रीम कोर्ट से झटका खाए केंद्र के पास राज्यों के सवालों का कोई जवाब नहीं था। दरअसल, करीब दस साल बाद हुए इस बैठक में केंद्र-राज्य संबंधों पर 2010 में आए पंछी आयोग की रिपोर्ट का भी विस्तार से जिक्र किया गया। उसकी सिफारिश है कि राज्य सरकार के बारे में कोई फैसला विधानसभा में होने देना चाहिए। राज्यपाल को उसमें हस्तक्षेप नहीं करना चाहिए। इसके पहले सरकारिया आयोग ने तो राज्यपालों की भूमिका को न्यूनतम करने की सिफारिश की थी। इन रिपोटरे में अधिक से अधिक विषयों को राज्य की सूची में रखने की सिफारिश की गई थी। दरअसल, उदारीकरण के दौर में पूरे देश को एक आर्थिक इकाई मानकर सभी परियोजनाएं केंद्र की मंजूरी से चलाने की सोच राज्यों पर कम से कम भरोसा करने की हिमायती है। इसीसे कई राज्य ने 14वें वित्त आयोग के अनुसार राजस्व-बंटवारे के प्रति भी असंतोष जाहिर किया, जबकि केंद्र उनका हिस्सा बढ़ना मानता है। इन असहमतियों का स्थायी हल निकालना ही श्रेयस्कर होगा।

Date: 19-07-16

चिंता की वजह

गत रविवार को पत्रकारों से बातचीत करते हुए रिजर्व बैंक के गवर्नर रघुराम राजन ने अपने उन आलोचकों पर सवाल उठाए जो उन पर आरोप लगाते हैं कि उन्होंने ब्याज दरों को ऊंचा रखा जिससे वृद्घि प्रभावित हुई। राजन ने अपने बचाव में स्पष्टï दलील दी। उन्होंने कहा कि उपभोक्ता मूल्य सूचकांक आधारित खुदरा महंगाई जून महीने में बढ़कर 5.77 फीसदी हो गई। यह सूचकांक में लगातार चौथी मासिक वृद्घि थी। बहरहाल रीपो दर 6.5 फीसदी तक सीमित रखी जा सकी। यह वह दर है जिस पर आरबीआई वाणिज्यिक बैंकों को ऋण देता है। राजन का यह कहना सही है कि उन पर आरोप लगाने वालों को पहले यह बताना चाहिए कि मुद्रास्फीति किस तरह इतनी कम है कि ब्याज दरें कम की जाएं?  रीपो दर के खुदरा महंगाई से अधिक होने की स्थिति में ब्याज दर में किसी कटौती का कोई अर्थ नहीं। जैसा कि उन्होंने कहा पिछले कुछ महीनों से खुदरा महंगाई दर लगातार बढ़ रही है। राजन ने जब से आरबीआई गवर्नर का पद संभाला है वह मुद्रास्फीति पर सख्त निगरानी करने पर केंद्रित रहे हैं। उन्होंने मुद्रास्फीति को तय दायरे में रखने की दिशा में भी अच्छी खासी प्रगति की। केंद्रीय बैंकों के अहम लक्ष्यों में से एक यह भी है कि कीमतों को स्थिर बनाए रखा जाए और राजन को यह लक्ष्य हासिल करने के लिए बधाई दी जानी चाहिए।