Composition of RBI Board (1999-2017): A glass how empty or how full?

RBI’s Board has just come back to centre of research on India’s monetary policy. One just looked at history and evolution of RBI Board from a 14 member team to a 21 member team.

The question that keeps coming to mind is how empty was RBI Board on 8 Nov 2016? Former RBI chief Subbarao in an interview said there have been precedents in the past as well:

Q: There are only three members of the RBI board, external members. The rest are all RBI Deputy Governors and Governor and Finance Ministry officials. The fact that 6-7 seats are vacant, did all this already pave the way for very weak opposition?

A: I do not think so. I think that is reading too much conspiracy into this. There have been several instances over extended period, the RBI board was not fully positioned. At least on the specific point you are referring to that the RBI board is not fully positioned. Yes, that is a shortcoming, that is not desirable, but to see some conspiracy in that and to say that the decision on demonetisation would have been any different or the implementation would have been any different if there had been seven more members on the RBI board is unrealistic.

One just dug up data from RBI’s Annual Report and came with following:

Executive Members

Non Executive Members

 

Nominated under Section 8 (1) a

Nominated under Section
8 (1) b
Nominated under Section 8 (1)c

Nominated under Section 8 (1)d

     

Local Board Members

External Directors

Govt Nominees

 

Governor

DG West East North South

 
Required members as per RBI Act

1

4 1 1 1 1 10

2

As on 24-Jan-2017

1 4 0 1 0 0 3

2

As on 8-Nov-2016

1 3 0 1 0 0 3

2

2015-16

1

4 0 1 0 0 5

2

2014-15

1 4 1 1 1 0 7

2

2013-14

1

4 1 1 1 0 7

2

2012-13

1

4 1 1 1 1 8

2

2011-12

1

4 1 0 1 1 8

2

2010-11

1

4 1 1 1 1 8

2

2009-10

1

4 1 1 1 1 10

1

2008-09

1

4 1 1 1 1 10

1

2007-08

1 4 1 1 1 1 10

1

2006-07

1 4 1 1 1 1 10

1

2005-06

1 4 1 1 1 1 10

1

2004-05

1

4 1 1 0 1 9

1

2003-04

1 3 1 1 0 1 10

1

2002-03

1 4 1 1 0 1 10

1

2001-02

1 4 1 1 0 1 10

1

2000-01

1

4 1 1 1 1 10

1

1999-00

1

4 1 1 1 1 8

1

Clearly, emptiness of RBI Board has been rising since 2013-14.

In 2013-14, there were a total of 17 members which was reduced to 13 in 2015-16. This further shrunk to just 1o (out of which only 8 were present) on the night of 8 Nov 2016. Moreover, the emptiness is all on account of Local Boards and External Directors from various fields. The executive members comprising Governor and 4 DGs and other non-executive members which are government nominees are fully occupied.

In earlier instances of emptiness, some positions fell vacant and were filled in due time. It wasn’t the case that all board positions are consistently not being filled as we are seeing in recent years.

More importantly, in earlier instances of emptiness RBI Board was hardly called into action as it was called in the recent currency exercise. This is unprecedented in RBI’s history and thus required full presence in spirit of the law. Even if outcomes could not have changed in case of a full board as critics argue, the government should have taken full precautions and filled the board to avoid any such conspiracy theories.

We talk about increased federalism but are looking to end the very federal sense of RBI Board by not filling Local Board positions. Either you abolish them following FSLRC recommendations or appoint them. It is amazing that out of the 20 members which are to represent the 4 boards (implying 5 member board), we just have one appointment who automatically makes it to the central board!

Would Reserve Bank or Government itself agree to any bank/company taking such a large scale action with such little board presence? If not, it should apply the same corporate governance principles to itself as well. If legislature does not follow the spirit of law (as RBI Act does not mandate so one has to follow spirit), then what is the point of it all at the first place?

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