Or, the RBI enjoys any freedom or autonomy from the finance ministry?
The RBI has got a new governor. He is none other than the former finance secretary. He just changed his seat, from New Delhi to Mumbai! He took orders from the finance minister sitting next to him in Delhi. Now, he might orders from the very same minister, of course, this time through oral messages or telephone or other means.
The point is the two functions, that of the finance secretary, a bureaucrat and the RBI governor, supposed to be a banking expert, are very different and here comes the peculiar Indian system or the Indian syndrome.
We have in India set some good and also some very bad examples. Dr.Manmohan Singh had set the example. Whether it is good or bad, let history judge.
Dr.Singh started off as a humble government servant in the PMO under Indira Gandhi and later climbed the ladder, now to land him in the very same chair where Mrs.Gandhi sat. That is an irony or we can call it destiny!
Now, we have the current finance minister, whose tenure also marks the very many radical changes in the economy, banking sector etc.
Now, how successful is the Finance Minister in running the economy? How much he has succeeded to push the economic reforms? He was complaining about the Left obstruction so long. Now, he might do something really more serious changes?
What would the real changes the finance minister has by way of economic reforms?
A look at the working of the banking system. How far the banking system delivered on its promises?
The Reserve Bank of India gets a new governor. He, the 22nd man, is like his predecessors, one bureaucrat who moves from finance ministry to the RBI, from Delhi to Mumbai!
Is this all the qualification?
Let us take the banking system as a case study.
The Indian banking system, the PSU banks have been functioning for long. Has the public owned banks served any larger public interest services or targets?
Has the banking system is responsive to public purposes, say, in reducing poverty, creating wealth at the grassroots or social spread of banking?
Before we come to that point, let us also consider that the current banking scene in the country has changed radically. The PSU banks have sunk their space and the more innovative private sector banks, the ICICI, HDFC and others have almost dwarfed the space for the PSU banks.
The government controlled banks have become bywords for inefficiency, sloth and malfunctioning and their priority sector lending has lost all its focus.
You can see what the finance minister is doing. He goes around only in his Parliamentary constituency and keeps opening bank branches! May be to ensure the voters interest in him! Even here he hasn’t shown any vision or dynamism to come out with an imaginative institutional innovations package.
Say make the co-op credit institutions the very dynamic institutions in crop loans. Or, make the small, tiny and medium enterprises sector the focus of the public banks, say for one year, with a target, like the job guarantee scheme, to create a number of rural entrepreneurs.
Mr.P.Chidambaram is a case of the wrong man for the wrong mission. He is a born pawn-broker and he is so rich, so inexperienced a politician to have any empathy with the poor and the weaker sections.
That lack of experience or expertise or willingness to learn shows. He hasn’t retained any talent under him, tax experts or priority sector experts, or consulted like the Nobel Laureate Grameen Banker!
The RBI is supposed to supervise the banks. It doesn’t. It has no power. There is no autonomy for the RBI. So, the fiscal profligacy of the government goes and that is traced as one of the reasons for the inflation going out of control.
Anyway, after the theme song of Mr.P.Chidambaram, the 9 per cent growth went off, the economy slowed down to below 8 per cent growth the nasty inflation rate came to haunt Mr.Chidambaram. From that time onwards the finance minister had lost a taste for words! He is not forthcoming and talking at all!
Is this all to the financial sector reforms? Has our PM or his very many economists and bureaucrats-turned bank experts are talking?
No, the government is silent.
Yet the financial sector reforms are coming on their own.
The (foreign) sovereign wealth funds are coming in a big way. They control assets worth, say 2 trillion to 3 trillion dollars and is expected to go up steeply. The funds could destablise many governments. So, when the funds tried to buy the P&O’s US port, there was a hue and cry from the USA, the very home of a free market economy. Because it was feared the Chinese would take over a symbol of American economic power! India too got jittery when the Singapore-based funds tried to take a stake in the ICICI.
The point is that given the globalisation financial sector reforms need very careful study and monitoring.
An independent regulator, like sibi, needed for banks and big funds.
This is now absent. The government is unmindful of the need. So, a bureaucrat is always selected as the RBI government. All the previous RBI governors were finance ministry secretaries.
The larger question for the common man is: with all this expertise, the banking system is leaving the farm and rural sector starved of funds for genuine wealth creating activities.
Do the PM or the FM care for such “power” less (or, thankless?) thoughts?