Tuesday, August 19, 2014

RBI's restructuring plan

I was on Bloomberg TV India this morning for a discussion on the RBI's restructuring plan, including the proposal to create an office of COO with the rank of Deputy Governor.

The restructuring plan is facing resistance from employee unions. It is the COO proposal, however, that has attracted the most flak in the media and drawn a frosty response from the government of India. Media reports indicate that the proposal was put up to the board of directors of RBI around the time of the budget. The board of directors of RBI does not have the same monitoring authority as a corporate board; the key entity, when it comes to monitoring, is the finance ministry. It is strange that the RBI did not take the ministry into confidence in the matter before listing the item at the board meeting.

At the board meeting, the finance ministry asked that the matter be deferred since their representatives would not be able to attend. At the next board meeting, the finance ministry made it clear that an appointment of the rank of Deputy Governor would require an amendment to the RBI Act and that somebody of that rank could not be appointed by the RBI governor; the appointment would have to go to the Cabinet Committee on Appointments.

That is not the only problem with the COO post. As media reports have pointed out, it signals that the person occupying the post is no 2 in the hierarchy, so that you have on Deputy Governor who is superior in rank to the others. That is not the tradition  at RBI. Moreover, the perception has gained ground that the post is being created into order to accommodate one particular individual. The perception may not be well-founded. But the very fact that it has gained currency is damaging to the RBI.

There is also controversy over the proposal to facilitate lateral entry into RBI. Nothing wrong with lateral entry. But the case must first be made as to what specialist skills are required and at what level. The RBI spends lavishly on training so that people are ready to take up positions that require special skills. If this is not adequate, there would be room for a specialist from outside. But, as I said, this has to be justified.

The RBI has acquired a certain stature and reputation over the years, in part because it is seen to be a meritocratic organisation. It has steered clear of the sort of controversies over appointments that have bedevilled other public institutions. The RBI must be careful to safeguard this hard-won reputation.


Anonymous said...

Sorry to write a comment which does not address the topic. But why are Indians fascinated with Indians who achieve in US rather than Indians who achieve in India. Just like congress, the BJP has announced today that US-based economist Arvind Subramanian might be appointed as Chief Economic Advisor. Offcourse BJP and Congress are the same.

If this trend continues, there is only going to be more brain drain. There is no point working or achieving anything in India. You are never recognized or respected for achieving in India.

Also why is that a brahmin always gets nominated for such positions. Much like Raghuram Rajan....Rangarajan..etc...

Things will never change in India. We never respect our own race, caste, creed etc. and that is why it is easy to colonize us than any other nation on earth.

Anonymous said...

Hi Anonymous,

I don't agree with you (we may agree to disagree).

Mr Raghuram Rajan or Rangarajan are given their positions because they deserve those and because India deserves them...nothing wrong in that.

Yes - I can agree with you if you say that India still does not have institute of that repute & quality that produced these economists and so more Indians are inclined to drain out of India.

And these caste, creed etc - I don't think they exist while recruiting some one at this level - for that matter, the zenith post of India (President of India) has seen so many caste in past years/decades. We should move beyond these realms of Caste/creed. Sorry to disagree and as I said - we may agree to disagree.