Stuff continues to be written on RBI Board. After its (mysterious) role in demonetisation, we have seen flurry of articles from comparing it to SEBI to international central bank boards. Then this blog looked at historical evolution of RBI Board and another one on fullness or emptiness of the Board in recent years.
Now, in another long must read post Bhargavi Zaveri adds more clarity to the debate. She says on the contrary FLSRC would have strengthened the RBI Board. Would it have altered the outcome of demonetisation?
|Table 8: Visualising the role of RBI in the demonetisation decision under the FSLRC framework|
|Question||Under the RBI Act||Under IFC|
|Is the recommendation of the RBI Board required for the Central Government to issue a notification demonetising currency?||Yes||Yes|
|Is the RBI bound to honor the promise on the currency that has been demonetised?||RBI Act is silent||Yes (Section 278, IFC)|
|Could the quorum for the meeting where the demonetisation proposal is taken up, be constituted without the presence of independent members?||Yes||Yes|
|How many seats were vacant when the decision to recommend demonetisation was taken by the RBI Board?||11||NA|
|Was there a time-limit for filling up the vacant positions of independent directors on the RBI Board?||No||Yes (See Feature 1 of Table 3)|
|Does the law obligate the Central Government to report reasons for not filling up casual vacancies?||No||Yes (See Feature 2 of Table 3)|
|Is the RBI bound to publish the manner in which the members who attended the meeting, voted?||No||Yes (See Table 7)|
|Is the RBI bound to publish the agenda and minutes of the meeting?||No||Yes (See Table 7)|
|Will there be an internal audit of whether the RBI breached any law in making the recommendation to the Central Government?||No||Yes (See Table 6)|
|Will there be an external audit of the performance and efficiency of RBI in replacing the currency notes?||No||Yes (See Table 6)|
|If the RBI board did not recommend the demonetisation, could the Central Government have compelled it to do so?||Yes, by exercise of its powers to issue directions, supersede the board or removal of members.||No, as it does not have the power to issue directions or supersede the board.(See Table 5)|
Hmm..Interesting and illuminating.
In the end she says the events have brought to attention issues of regulatory governance:
Post demonetisation, the discourse on RBI board governance has focused on either the independence of RBI or the conduct of former Governors or the present Governor. This is problematic, as it misses the woods for the trees. The demonetisation event has shown us that neither sheer board strength nor a brute majority of independent directors, can ensure regulatory independence.
Independence, accountability and transparency are intrinsically linked. The fact that the conduct of board members at meetings, together with details of who voted in what manner, will be published, incentivises people to vote responsibly. Hence, any argument for autonomy is rather incomplete unless it simultaneously asks for transparency and accountability.
A good fallout of the demonetisation event is that it has re-invigorated debates on regulatory governance and its importance on outcomes that we generally underplay India. We must not waste this opportunity and the lessons learnt to continue our reform agenda on regulatory governance.
This is true albeit partly.
The Governors and former Governors are key to the discussion. They have not been talking about the things that eventually matter. For some time it seems RBI Board has not really been serving its purpose and has become a cosy elite club. We clearly needed more discussion on this rather than mere inflation target and MPC members.
It is also ironical how we are randomly impementing suggestions of FSLRC. We have not implemented its recommendations on the RBI Board but have gone ahead with other things.