Why aren’t questions asked to RBI Board over demonetisation?

There is a lot of blame game since the RBI Annual report 2016-17 was released. Much of the criticism is directed towards the Government as basically it was their decision.

However, the story is not entire clear here as basically the Government says RBI Board gave them the advisery to do so. There are a lot of questions and clarifications over RBI Board’s role in demonetisation. Now one may agree or disagree with their specific role but one can’t get away saying that the Board had no role to play. Unlike previous two demonetisations where RBI Governor said no, so the Board was not involved and the decision was made by government under closed doors. So the entire thing rested with the Government.

This time around this is not the story as RBI Board was involved. The former Governor in his recent statements said that RBI was not involved in demonetisation under his term, so something must have happened in the two months to convince RBI to agree to the decision.

Some people have said this would not have effected the outcome, which is bizarre.  This means public institutions and their boards do not matter. Then why care at all for any Governance? We should do away with all the drama around Boards etc and let Governments run the show.

Infact, in central banking this is even more crucial as this is typically the heart of the matter. Can governments appoint people and pull levers as per its wishes? We appoint well diversified Boards largely to prevent Government capture. Infact, even when RBI started as a shareholder central bank, there were lots of debates over the governance and constitution of the board. It was well-known that if British Government manages to keep members as per its wishes, then there is no point of having a central bank at all. Thus came the idea of having Local Boards and so on. People of high esteem and eminence have been elected on the RBI Board for a long time. The idea was to balance the old conflict between government and monetary authority.

Now coming back to 2016-17, one cannot doubt that RBI Board has taken easily the biggest decision compared to all previous Boards. But we get no statement or message from any of the members. Infact subsequent Board meetings since the decision have not released anything. There was one meeting in Dec-2016 (which was plain horrible)  and another in Feb-2017.

Infact, there has been no meeting from Feb-2017 to Aug-2017 as per the website . This itself is puzzling as RBI Act says:

13. Meetings of the Central Board.
(1) Meetings of the Central Board shall be convened by the Governor at least six times in each year and at least once in each quarter.
(2) Any 1[four Directors] may require the Governor to convene a meeting of the Central Board at any time and the Governor shall forthwith convene a
meeting accordingly. 
(3) The Governor, or 2[if for any reason, he is unable to attend,] the Deputy Governor authorized by the Governor under the proviso to subsection (3) of
section 8 to vote for him, shall preside at meetings of the Central Board, and, in the event of an equality of votes, shall have a second or casting vote.  

Given the fact that the Annual Report has been released and assuming there was a Board meeting before the release, one expected something from Board members. It would have been unusual as one does not remember this happening, barring once when the Board dissented over resignation of  Governor Bengal Rama Rau.  But these are unusual times as well and they took this major decision.

This is like any Corporate Governance matter where shareholders/stakeholders demand explanations from a company board over any major decision taken by them.  As holders of a public institution whose entire edifice is dependent on the words faith and trust, this is the least we expect from them. But all we see are routine Board appointments as if nothing  has happened.

Even the media has been fairly quiet on the matter which is puzzling by itself…

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