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Thursday, June 26, 2014
Why Rajan is Wrong?
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The very purpose of VITALINFO is to provide a platform for wider dissemination of updated information related to and happening of events in and around RBI.
2 comments:
In a fast changing world, it is futile to scare people by quoting the positions they might have taken in a different context in the previous decade. This applies to economists and politicians too. One should go by the spirit of the following observation made by Dr Rajan in his June 17 speech:
"More broadly, the FSLRC seems to have a somewhat idealistic view of the benefits of reorganization. It seems to believe that once activities are combined in an organization, synergies can be fully exploited while if they exist in separate organizations, synergies will not be exploited. I too shared such a view, but I now believe it is too extreme. Silos within a large bureaucratic regulator may prevent synergies from being exploited, while frequent inter-regulatory meetings can allow regulators to capture many of available synergies between their activities. Indeed, one particularly useful proposal by the FSLRC is to put the Financial Sector Development Council on a firmer footing. It is a good venue for inter-regulatory cooperation, and its benefits are further augmented by personal interactions."
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My response mailed to Economic Times on June 26, 2014:
Co-authored by Justice B N Srikrishna, Chairman and Shri D Swarup, Member-Secretary of the Financial Sector Legislative Reforms Commission, the article attempts to presume and conclude that RBI Governor was wrong in expressing his views against FSLRC recommendation to super-impose a ‘Tribunal’ over RBI, when adequate facilities for ‘appeal’ where absolutely needed, existed and saying that he was not comfortable with re-inventing regulatory architecture in banking sector as the existing ones were not in disrepair, in his June 17 speech.
Dr Rajan had focused only on the aspects concerning RBI and the article has used SEBi experiences and sanctity of ‘rule of law’ to conclude that ‘Rajan is wrong’. While on the defensive, no harm in drawing arguments from anywhere, but it would have appeared more convincing, if, some instances where RBI would have performed better, were the proposed changes were in place had been quoted.
The article states that ‘We reject Rajan’s claim that the regulator must continue to have discretionary powers and should not be answerable’. Does this ‘rejection’ go well in the context of Dr Rajan’s following observation?:
“Am I arguing that no checks and balances are needed? Certainly not! But there are already checks and balances in place, including review by constitutional courts like high courts through writ petitions. Senior officers of the regulator are appointed, and can be removed, by the government. The FSLRC recommends an annual report to parliament, as well as regular discussions with parliamentarians. These are good suggestions, which would add to oversight.”
It may be recalled that the FSLRC report which was signed by seven members had dissenting notes from K J Udeshi, P J Nayak and Y H Malegam(all members). In effect other than the chairman and the Member-Secretary only two members had gone with the FSLRC report in its entirety.
M G WARRIER, Mumbai
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