Silent SEBI vs. Raucous RBI

Let us start with a story. There were two children in an Indian household. One was “perceived” as this really brilliant type who was really liked by relatives & friends (both in India and abroad). The other was this silent type who was relatively ignored by one and all. As the first one was highly popular, the parents were also pushed into thinking highly of the kid. This constant adulation also led to continuous pressure on the parents to meet first one’s demands and this led to certain frictions as well. But beyond that, it was all hunky and dory. The first one got constant tutoring even from abroad over the years. The second one was nearly ignored barring ensuring the basics but it never really created any trouble over this favoritism.

Years of such thinking and adulation passed. The parents were highly busy and did not have much time to check the performances of the two kids. Based on expectations and hype, they assumed the first one would be doing really well and didn’t think much of the second one. The parents also learnt that the brilliant one is now only targeting performance in math which they found weird. They thought it is overall score/GPA which matters. On being asked, first one said that this is what her friends/cousins were doing in foreign shores. She was even thinking of making a committee of such friends to advise him how best to maximize her math scores. She also asked for independence from parents as she could now decide what was in her interests. The parents were both puzzled and hurt but did not question the apparent wisdom of the progeny.

Then one day, the parents suddenly stumbled onto report cards of the two children and all hells broke loose.  The first one’s performance was no where compared to all the attention she had got over these years. And the second one had surpassed not just expectations but even beat his elder sibling in many an areas. Over the years, the first one was just creating noise whereas second one was all poise. This ofcourse set the parents wondering why this was so?

This in many ways is the story of RBI and SEBI, Finance Ministry’s two children. Not to forget the Ministry has many more such silent performing children but not discussing them here. It is amazing to note how much hype and attention goes to central bank and there is virtual ignorance of the capital market regulator. This is even more bizarre when one thinks how much equity markets have contributed to Indian economy which has been managed by silent SEBI over all these years.

Remove equity markets and the India story virtually collapses. India lags behind even its South Asian peers on many aspects of human development which matter to well being. It is only equity markets and commentary over it which keeps India going.

There is huge discussion on how RBI has stabilized our economic situation and kept us insulated from global shocks over all these years. But virtually nothing on how SEBI has shaped Indian equity markets post Harshad Mehta Scam making our markets one of the best in the world. Our trading and settlement systems are even more advanced than even the advanced world.  Most western experts are surprised to see how far India has come in equity market space and yet remains so backward in other matters. Name it plain equity, futures, options etc and we have it. Even currency futures which remained a dud for many years sprang to life as soon as it came under SEBI’s radar. Only blip has been corporate debt markets which hasn’t moved despite many attempts and efforts.

And guess what? Unlike RBI which insulates us by keeping a tight leash on markets, SEBI insulates us by actually allowing markets to function! Indian equity markets neither closed for a single day nor we banned any form of market trading as the advanced world markets did during the 2008 collapse. This is an aspect which is rarely mentioned or appreciated even in India.

Even bigger deal is how all this has been done in a nearly anonymous institutional fashion.  There are hardly any fancy talking economists at the helm or even as advisers. Most SEBI chiefs have been picked from the IAS cadre who are actually deemed as generalists and not specialists. Moreover, they are also seen as highly interventionist given their bureaucratic backgrounds. How perception is different from reality as the parents also observed above.

The near neglect of SEBI’s achievements and absolute coverage of RBI is just amazing. Take the case of Doing Business Rankings for instance. Despite all the negativity around India’s rankings, there is one component in which India ranks 7th in the world. This is protecting minority investors, a cause championed by SEBI over these years. This was something the SEBI chief told the audience (in which the author was also there) in one of the  conferences which was obviously ignored by the media (whereas even closed door discussions of RBI chiefs are highly sought by the media).

Those who think only RBI has the intelligence/competence and deserves attention should read this really emphatic speech by former SEBI chief Mr. C.B. Bhave –

There could have been many more such speeches but the silent kid is least interested in bragging about itself. Even the speeches section in SEBI’s website is hardly updated.

The recent IFC report raised huge concerns over RBI’s new role, taking away of veto power, MPC committee and so on. Not a thought or word was put on how this would impact/change role of SEBI. Not a thought has been spared on SEBI’s relation with the government and how the whole arrangement has worked without any major controversy.

Post IFC report, most experts stress on the need to make RBI a modern central bank just like seen in the advanced world. This is being suggested despite seeing how badly central banks have performed in these places. The independence equation is way too overdone and so is all the past records. Those who think MPC will bring diverse views and help make better policies are just ignoring how one sided whole game has been. With or without veto, whatever the chief says is the final word.

The real deal is to make Indian central bank resemble more like its silent yet high-performing sibling. The best policies and policymakers are usually those who make the least noise. The whole purpose is to develop and frame policies and not seek attention.

Coming back to predicament of the Indian parents, they realized they were not fooled alone in the game. Their foreign counterparts have been consistently making such mistakes and continue to do so..

3 Responses to “Silent SEBI vs. Raucous RBI”

  1. Anil Says:

    Hi Amol,
    Thanks for this wonderfully enlightening article. Seriously no one can accuse SEBI of flamboyance. Where as on comparative terms RBI receive much more adulation.
    The phenomenon, I think, is more because of Dr Raghuram and the legend of him accurately predicting the imminent crisis that to much of chagrins of Larry Summers and alike.HE was touted as a rockstar economist of international repute. When he took over as Governor, we use to see his picture at least in 5 pages of business dailies for a complete month. Things reached height when Shobha De decides to weigh in on the credentials(and looks 🙂
    ) of RBI Governor. I never saw media focus given to other Governors.

    Or may be its the recent crises, where Central bankers seems to be carrying the cross.

    But whatever it is ……………….right now it is over the top. RBI Governor’s remarks made in a private gathering should not be subject of such media hype.

    But then we are living in such times………………….

  2. Anil Says:

    Reblogged this on My Notes on Economics.

  3. Amol Agrawal Says:

    SEBI has always lived under the shadow ever since its inception. But yeah the shadow has started to loom much longer in recent times. It is not over the top but really over the Everest.

    John Galbraith once said that that only function of economic forecasting is to make astronomy look respectable! I never knew economists will take this bit so seriously and actually look to beat astronomers. I was too involved in this forecasting game while working earlier and was amused to get any of the calls on macro numbers right. It was just plain good luck.

    One still fails to understand the hype around predicting the global crisis and taking credit over it. It was staring at your face since Bretton Woods broke down in 1973 and US started going downhill. Krugman wrote this book age if diminished expectations in 1989 where it was all summed up neatly that US game will not go on. It was just another case of business cycle reversal which people from freshwater said did not exist anymore!

    And what does International reputation mean in economics? It is just what Americans feel. Anything American is both international and global .Krugman’s post on MIT economics says it all

    Moreover, whatever Greenspan and company did/or believed was exactly what the guys from Freshwater ordered. Free markets, big and deep finance, fancier derivatives and so on. Why all their finance hype failed has been just buried under the carpet. It was hype, hubris and arrogance all over the face and place for you which was equally responsible for the downfall.

    Cutting the long story short, what goes round comes around as well..We avoided the hype and prevent institutions from getting personalised. We are now slipping into a dangerous territory…

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