Need for Governance at the Central bank boards…(lessons for India?)

This is a timely piece by Ashraf Khan on IMF on the need to look at central bank boards. He says Central bank boards are no different from corporate boards and needs similar critical reviews.

This is highly relevant to India.

One of the biggest puzzles (and frustrations) has been role of Indian Central Bank’s Central Board in India’s demonetisation.

Unlike previous 2 demons, this one in 2016 was done via RBI Central Board.

However if one sees the composition of current Central Board, there are just 10 appointees of the total 21 members required as per RBI Act. There is just one member from Local Board. The 4 Local Boards should have 5 members and they appoint one member to the Central Board. It is puzzling that there is just one appointment from Eastern Zone and all other Boards are just vacant. These voices should have been of huge value given such large inter=region differences in branches/ATMS and so on.

How could any Board with not even 50% membership pass a decision as monumental as this? Would the Indian Central bamk agree to any such decisions made by a bank impacting all the shareholders with less than 50% of Board representation? It is  a classic case of who regulates the regulator?

There is no doubt that finally Government can do what t wants to and could have done this via an Ordinance. But then they used RBI Board to channel the decision which should lead to some explanations by the Board members. The eerie silence at India’s Mint Road is just baffling. It is stunning to see recent research papers and speeches from the central bank. It is as if nothing has happened..

It is ironical to see one of the lectures being in the memory of Sir Purshotamdas Thakurdas. He was someone who fought a lot for composition of RBI Board as we were debating setting a central bank in India. He tried to ensure that British do not capture the new central bank and there is adequate Indian representation. The memorial lecture does not discuss any such things but pats RBI on the back for being ahead of its time in prudential measures!

It is also funny to see near silence on the issue of RBI independence and autonomy in the media. There was so much noise about composition of MPC, veto power with RBI chief and what not. So much was written that much of it read as hysterical.  Now in one swoop, all this autonomy has come to nought.

The debates are all around whether there will be GDP loss, whether decline in currency will lead to Govt taking away profits, inflation, rate cuts and what not. I mean how can we even write pieces on whether MPC will cut rates or not? Does it matter? In all this analysis, we are not looking at institutional developments at all.  They are the ones which are far more important and will play a role in both short-term and so called “long-term”.

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s


%d bloggers like this: