Economics and Politics. Together we go far. We have miles to go before we sleep! : Has the current BJP government undermined the autonomy and functioning of institutions like RBI etc?

Somewhere the current government has been weakening the institutions and RBI is no exception. Even the ardent supporter of the BJP or the government can not show a single example where the current government has strengthened any of the premier institutions.

The government abolished the planning commission and replaced it with NITI Aayog on Jan. 1, 2015
Judiciary -The government tried to interfere with the Judge's appointment process. ‘Interference’ in judicial selections, transfers does not augur well for the institution: Supreme Court.”
FTII -There was a huge round of protest against the appointment of Gajendra Singh Chauhan (best known for his role as Yudhishthira in Mahabharat), , a member of BJP, as the chairman for Film and Television Institute of India (FTII), which sparked controversy and opposition by FTII students, leading to his resignation in October 2017.
Failing the test: Top 10 Smriti Irani controversies as HRD minister - IIM bill -The premier management schools raised objection to the HRD ministry’s move to include provisions in the IIM bill that could concentrate powers in the hands of the ministry. Facing heat, Irani’s ministry held several rounds of meetings with the IIMs and later decided to modify/delete the contentious clauses. IIT-Delhi director quits. The resignation of IIT-Delhi director RK Shevgaonkar in December 2014, two years before his term, was attributed to unnecessary intervention by Irani in the premier technological institute. N-scientist’s allegations - Nuclear scientist Anil Kakodkar resigned as the chairperson of the IIT-Mumbai board alleging intervention from the HRD ministry in the selection of three IIT directors. University V-Cs sacked. During her tenure, two central university vice-chancellors were sacked on her recommendation, which happened probably for the first time in the country’s history.
CBI -The recent war between the top two officers of the CBI also appeared to be an internal spat, but was actually a direct result of the Modi government first appointing its favoured nominee Alok Verma as the director in January 2017, and then putting his back up by inserting another favourite Rakesh Asthana as his number-two. After the Verma-Asthana fight came out in the open, the government arbitrarily, and perhaps illegally, sent both of them on leave, and superseded the incumbent number-three officer – Center's third favourite, Nageshwar Rao – the interim director. The Supreme Court’s intervention of asking the CVC to look into the charges against Verma shows the fraught and vulnerable nature of the organisation.
CIC and RTI -In a move to curb the use of the Right to Information (RTI) Act to expose government malfeasance, the Modi government has moved amendments to the Act itself, which do away with the present five-year fixed term for information commissioners both at the Central Information Commission (CIC) and State Information Commissions (SICs). The amendments also enable the Centre to prescribe the terms of office, salaries and allowances, and other terms and conditions of service of chief information commissioners, and information commissioners at both central and state levels
Election Commission buried under a tide of complaints. This is a Constitutional body that appears to have buckled under the government’s pressure, according to media reports. The EC has thus far not displayed, publicly at least, any resistance to government pressures.
CVC - The Central Vigilance Commission, another statutory body, has been headed by a Modi appointee KV Chowdary since 2015. At the time of his appointment, several eminent persons had raised a red flag saying that there were allegations of his involvement in various criminal/corruption-related cases including the Nira Radia tapes case, the Moin Qureshi case (which involved the present warring CBI officers too), and others.
Indian media body asks the government to withdraw restrictions on journalists. Indian journalists say restricted entry will reduce the number of source-based stories they are able to produce from the finance ministry, seen as second only to the prime minister's office in importance India's ranking fell by two points to 140th out of 180 in the 2019 World Press Freedom Index, lower than countries such as Afghanistan, Myanmar and the Philippines. It ranked 80th out of 139 countries surveyed when the index was started in 2002. In more than five years in power, Modi has not held one news conference in India. The prime minister's office is also not accessible for journalists without a scheduled appointment. India’s once-famed press is devolving into a propaganda apparatus. Critics have said that freedom of the press has been under attack since Prime Minister Narendra Modi's government first took office in 2014 and journalists have complained of intimidation for writing critical stories

Coming back to the question of undermining the functioning of RBI - The warning note issued by RBI’s Viral Acharya comes in the background of a series of friction points between the RBI and the government. These include how to deal with the ‘prompt corrective action’ (PCA) framework for banks with highly stressed assets, how to deal with bad loans or NPAs in general, whether to have a separate payments regulator independent of RBI, and whether the government should repeatedly dip into the RBI’s reserves and capital to bolster its own balance sheet.

“Governments that do not respect central bank independence will sooner or later incur the wrath of financial markets, ignite economic fire, and come to rue the day they undermined an important regulatory institution,” deputy director of RBI Viral Acharya said at a lecture in Mumbai.

The Reserve Bank of India (RBI) Governor Shaktikanta Das said on that India's gross domestic production (GDP) growth at 5 percent came as a surprise and was much lower than anticipated.

"We (the RBI) predicted growth at 5.8 percent. Nobody predicted less than 5.5 percent. The number came as a surprise, worse than all predictions," the RBI Governor told news channel CNN News18.

See the pathetic condition of our economic think tank, a person who is heading the highest policy-making body is surprised to see the drop in GDP growth rate. A body that controls Monetary and Fiscal policy, the body that is supposed to give direction to the economy, the body that is supposed to influence trend creation or at the least understand the economic phenomena much before it become a trend, is clueless of what's happening. It's a great cause of concern for the nation. A person sitting at the helm of economic affairs, having access to all kinds of statistics should have been able to identify the downward trend well in advance, much before the general public gets a hint of it, rather than helplessly expressing surprise and being a mute spectator.

If such is the condition of our think tank, I do not think they are in a position to advise suitable corrective measures to the Government. Most of them are still in a reactive frame of mind, and by the time they work out some strategy, it could be too late. We need people who understand the subject and can think ahead of time. We need people who are not helplessly surprised. We need people who can raise flags in advance. We need people who can tell the Government in advance, what is to be done and convince the Government for needful action.

Just think of a situation that would happen if our Army General didn’t know what was happening around and got surprised by Pakistan’s move? We all might be dead meat before we wake up.

RBI-Govt spats are nothing new but resignations by Governors are -In India there have been instances of differences between the government and the central bank — most notably, YV Reddy, D Subbarao, and Raghuram Rajan in the recent past. But seldom has it ended in the resignation of the governor

1957 BENEGAL RAMA RAU -The spat between Benegal Rama Rau and the ‘rude’ finance minister, TT Krishnamachari, in the fifties was another case. It was largely a clash of personalities as well as Krishnamachari’s belief that the RBI was a department of the finance ministry

2018 The tension between the government and the Reserve Bank surfaced sporadically after Urjit Patel took over in September 2016. But it became ugly with both going public using media as a platform to air their differences since late October 2018 when a deputy governor of the RBI aired concerns over the central bank’s autonomy. The series of issues that followed ultimately led to Governor Urjit Patel’s resignation.

Patel disagreed with the government's assertion on RBI's reserves. While the issue of surplus transfer is not directly related to Patel's resignation, cracks between the government and RBI over this issue were visible days before Patel resigned.

The prime debate at the time was the larger issue of RBI's independence, which according to Patel and his deputy were being attacked by the government when it invoked Section 7 of the RBI Act, which empowers the government to give directions to the central bank on matters of public interest.

But that's not the only controversy surrounding the excess reserves of the RBI. A Business Standard report indicated former finance secretary Subhash Chandra Garg who was not in favour of the recommendations of the Jalan committee and expressed dissent.

Garg's removal from the top job at the finance ministry played a huge role in the approval of the Jalan committee report.

It is important for all stakeholders to view and appreciate institutional autonomy in the right spirit. When the financial crisis struck in 2008, central bank autonomy, whether statutory or traditional, did not come in the way of governments.

The International Monetary Fund (IMF) supports central bank autonomy and accountability since it facilitates price and financial sector stability. A central bank should have sufficient authority to formulate and implement monetary policy. A Central Bank is said to be independent or autonomous if it is free from any kind of political pressure or influence in the formulation or implementation of monetary policies of a country.

The government needs to consider the following

Not everyone who criticizes is your enemy and not everyone who supports is your friend.
Sometimes disease doesn’t kill you, but the medicine could kill you. Demonetisation was one such medicine that didn’t cure the disease but certainly killed the patient.
A weaker institution would not oppose the government’s action and toe to its every command. But it can not help the Government in the hours of need. Only a strong and creditable institution can support the government whichever the field may be.
A man of eminence would not say Yes Sir every time, he may confront you, unless you prove that you have a better logic or better cause. But he could turn up to be a great asset for you in your time of need.

Demonetization was one of the most ill-advised moves even though the intention was right. It put RBI’s autonomy at stake.

The efficiency and capability of an institution could be killed in two ways. One is to interfere in its operation, more so when interference is made by incompetent people. Secondly appointment of incompetent people to head the organization.

RBI is the policy-making body for the country. It makes the monetary and fiscal policy of the country and performs other important economic activities for the nation. A strong creditable Central Bank is a fundamental requirement for the stability and growth of the economy. You can not have a weak institution and expect it to play a huge constructive role in nation-building, both are mutually contradictory. You can not select a weak player and expect him to play like Virat Kohli. You can not appoint a weak captain (without decision-making authority) and expect him to win a World Cup for you.

The RBI always has had its disagreements with the government, mostly in private and rarely in public, when it comes to its autonomy in setting the monetary policy, regulating banks, managing the rupee value in the foreign exchange market, and even debt management function.

Governor Rajan's biggest contribution was to kickstart the cleaning of banks' balance sheets from hidden or likely NPAs. This exercise continues as Governor Urjit Patel also refuses to budge from relaxing NPA guidelines.

Governor Patel broke his silence when the government started the blame game over the Nirav Modi scam. What infuriated the RBI was the comment from Finance Minister Arun Jaitley who said that the regulators have a very important function. "Regulators ultimately decide the rules of the game and they have to have a third eye which should be perpetually open. Unfortunately, in the Indian system, we politicians are accountable but regulators are not," the finance minister had said.

Exactly two weeks later, Governor Patel shot back saying the RBI's regulatory powers over public sector banks (PSB) are weaker than those over private lenders. In his speech, Deputy Governor Acharya also said that there is limited power over PSBs, especially overthrowing boards, mergers license cancellation, etc.

For quite a long time, the government and the RBI have been at loggerheads over public debt management, a function which is under RBI's domain and the government wants to hive off. But RBI had strongly protected its turf. The government still wants a separate agency managing the public debt function, probably with bureaucrats manning it whereas RBI wants an agency independent of government and the RBI. While the public debt management issue is still hanging, the government has set its eyes on yet another RBI function -- Payments & Settlement. A government committee suggested the creation of an independent regulator to manage payments-related issues. This is yet another instance of encroaching on RBI's turf or taking away its powers. The RBI, in its dissent note to the committee, has outrightly rejected the idea.

It's high time that in a critical position, the Government appoints competent people, who know their business, who can confront the Government if required in the interest of the nation, or convince the Government about the corrective measure, people who would not compromise their position for fear of losing their job.

The Government has to uphold the morals of the institutions and respect its autonomy. Not having a strong Institution would affect the Government, the people, and the nation dearly. The current Government doesn’t have a very high image in maintaining the autonomy of apex bodies. The government should appoint people who add value to the chair and not burden the institution.

Ref:

1. Gajendra Chauhan - Wikipedia

2. Failing the test: Top 10 Smriti Irani controversies as HRD minister

3. India's democratic institutions are crumbling. And Modi government is to blame for it

4. ‘Interference’ in judicial selections, transfers does not augur well for the institution: Supreme Court

5. How Modi Government Is Destroying Key Indian Institutions | NewsClick

6. Election Commission buried under tide of complaints, bias accusations

7. Indian media body asks government to withdraw restrictions on journalists

8. How Narendra Modi has almost killed the Indian media

9. India’s Not-So-Free Media

10. Modi government freezes ads placed in three Indian newspaper groups

11. Film and Television Institute of India - Wikipedia