I think the board was pragmatic, said RBI board member Sachin Chaturvedi. He was speaking about the Reserve Bank of India (RBI) board met on Friday, the first one since the newly appointed governor Shaktikanta Das took charge. Besides Sachin Chaturvedi, other experts, including Jaimini Bhagwati, RBI Chair Professor ICRIER, Arvind Virmani, former CEA and Ananth Narayan, Professor at SPJIMR give their take on the meet.

Shereen: The first board meeting where we saw the new governor sort of address some of the issues, discuss some of the issues. We have got a one paragraph statement that the RBI has put forward by way of giving us some sense of what went on, can you give us some colour on what were the issues that were discussed today?

Chaturvedi: I would not be making more than what that one paragraph says because I am bound by the confidentiality clause. Your correspondent is absolutely right in terms of how the board today actually avoided all those issues as I think is very rightly reported.

The fact that governance framework of RBI was there as the press release also mentioned, I think it is absolutely correct, it captures all the four broad contours of it namely the global challenges, the challenges that are there of liquidity here back home and then also trying to see how currency management is to be done and of course the credit delivery.So it captures the issues on which we had seen all these controversies and then we were also trying to see how we are trying to address broad trends and our progress.

Shereen: I just wanted to ask you and I understand and I appreciate the fact that you are bound by confidentiality, I wanted to get your reaction to what we have seen, the comments that have come in from many ministers in the government, the finance minister, Piyush Goyal tweeting about the PCA framework and saying that there was no consultation, but we do know that there in the past has been consultation between the government and RBI on that issue. So it looks like the government is very clear that a review of the PCA framework for instance is necessary, it is the need of the hour. How would the board be reacting to the comments that have come in so far?

Chaturvedi: I think the board was pragmatic, we had all different kinds of views which again as I said I would not be talking about but we can definitely mention the larger spirit with which RBI has also sort of given the press release. So it captures the details in the right earnestness I would say in terms of how we would be managing some of these issues in the days to come.

Shereen: Any update on whether the BFS which is looking into the issue of the PCA review has firmed up its report, how soon is it expected to firm up its report, was an update given today to the board?

Chaturvedi: No, what came to the board was more a report that would be soon launched by RBI on state of banking in India. So that is the routine report that we issue generally in December. So that we discussed and I think it would be issued very soon by RBI.

Shereen: Has there been any update on the panel that is expected to be setup on the capital reserves issue because that was something that was awaited also?

Chaturvedi: No, we could not get into details of that today. However, I am sure in the first quarter meeting next year probably it would come up and then we would have some of these issues addressed.

Shereen: So no decision has been taken on the composition yet?

Chaturvedi: No.

Shereen: This was the first meeting of Shaktikanta Das; give me some sense of what the interaction was like?

Chaturvedi: It was absolutely fantastic. He brings in his characteristic conciliatory approach. So he was very much there. He gave chance to everyone to speak, in fact he asked everyone which I think is absolutely democratic in terms of getting everyone along. So that was very widely appreciated in the board.

Everybody enjoyed interacting and was heard -- that was the most important thing. He also mentioned about his meetings of yesterday. So I think he was forthcoming, he was open, and more importantly was very democratic in his approach.

Ritu: Would the board necessarily have to clear any changes if at all to the prompt corrective action (PCA) norms or could we hear some changes coming from the RBI even before the next board meeting?

Chaturvedi: This is part of the issue that we discussed as to what are the lines within which the board functions, what are the contours of that action? So, that is still to be concluded, we had some discussions but we haven’t gone beyond that point. So, those issues are still not addressed fully.

Shereen: You listened in on what the RBI board member was telling us and you have seen the statement from the RBI and the comments that have come in before the board meeting from various government ministers. What is your sense now on the road ahead on some of these issues?

Narayan: It is a relief that we had a short board meeting, 5 hours shorter than the last time, probably a sign of the changing times and may be a more conciliatory board. I do hope and pray that we find a way of putting the genie back into the bottle. This whole sceptre of the board becoming more activist and the government getting more activist in terms of directing the RBI to do things, if you recollect the note after the previous board meeting distinctly had sections saying the board directs the RBI to do the following, I think that is a bad genie which has been let out of the bottle. We have to put it back.

Yes of course the RBI needs to be accountable and we need to have a lot of scrutiny on things that RBI has done. I am pretty sure that the government is not the right body to direct the RBI to do things. There are different compulsions involved and we have to find a way of getting back to a neutral RBI.

The last bit on those contentious issues, there is always room for conciliation, each of these issues I am sure there will be conciliation, I just hope the conciliation doesn’t result in something which is only the RBI giving forbearance, the deeper reforms such as banking reforms, such as infrastructure reforms, power sector reforms etc are the ones that really will solve the problem for us. We do not want to concentrate only on the palliatives and let these bigger medicines away.

Shereen: Would that be a concern that you would share as well that given the points of friction that we have seen so far, that perhaps the road forward could be more palliative and more forbearance expected from the RBI as opposed to real changes and real reform?

Virmani: Credibility depends on making professional arguments which are seen by a majority of professionals as having merit. To think that every single issue can be resolves by one view, would not be correct.

The basic difference a central bank being directed arbitrarily by a political government versus one which is credible is to have credible professional arguments. So, that will be the key test. I do not have a crystal ball, I do not know whether on every issue that will be true but I think some of these issues are resolvable by professional argument and judgement. We may not all agree with that solution but if the RBI can give reasoned professional arguments in favour of their own case then I think they will be accepted and credible. They may however be certain issues where that is not true. So, I expect a mix of those two things, I do not think it is going to be just one or the other.

Ritu: Would the board necessarily have to clear any changes if at all to the prompt corrective action (PCA) norms or could we hear some changes coming from the RBI even before the next board meeting?

Chaturvedi: This is part of the issue that we discussed as to what are the lines within which the board functions, what are the contours of that action? So, that is still to be concluded, we had some discussions but we haven’t gone beyond that point. So, those issues are still not addressed fully.

Shereen: You listened in on what the RBI board member was telling us and you have seen the statement from the RBI and the comments that have come in before the board meeting from various government ministers. What is your sense now on the road ahead on some of these issues?

Narayan: It is a relief that we had a short board meeting, 5 hours shorter than the last time, probably a sign of the changing times and may be a more conciliatory board. I do hope and pray that we find a way of putting the genie back into the bottle. This whole sceptre of the board becoming more activist and the government getting more activist in terms of directing the RBI to do things, if you recollect the note after the previous board meeting distinctly had sections saying the board directs the RBI to do the following, I think that is a bad genie which has been let out of the bottle. We have to put it back.

Yes of course the RBI needs to be accountable and we need to have a lot of scrutiny on things that RBI has done. I am pretty sure that the government is not the right body to direct the RBI to do things. There are different compulsions involved and we have to find a way of getting back to a neutral RBI.

The last bit on those contentious issues, there is always room for conciliation, each of these issues I am sure there will be conciliation, I just hope the conciliation doesn’t result in something which is only the RBI giving forbearance, the deeper reforms such as banking reforms, such as infrastructure reforms, power sector reforms etc are the ones that really will solve the problem for us. We do not want to concentrate only on the palliatives and let these bigger medicines away.

Shereen: Would that be a concern that you would share as well that given the points of friction that we have seen so far, that perhaps the road forward could be more palliative and more forbearance expected from the RBI as opposed to real changes and real reform?

Virmani: Credibility depends on making professional arguments which are seen by a majority of professionals as having merit. To think that every single issue can be resolves by one view, would not be correct.

The basic difference a central bank being directed arbitrarily by a political government versus one which is credible is to have credible professional arguments. So, that will be the key test. I do not have a crystal ball, I do not know whether on every issue that will be true but I think some of these issues are resolvable by professional argument and judgement. We may not all agree with that solution but if the RBI can give reasoned professional arguments in favour of their own case then I think they will be accepted and credible. They may however be certain issues where that is not true. So, I expect a mix of those two things, I do not think it is going to be just one or the other.

Shereen: What is it that you would now be watching out for, what is the market going to be watching out for from hereon?

Narayan: Now we need to see what really comes out of those contentious issues. I completely share Dr. Virmani’s hope that we do see proper professional arguments coming through on each of the issues whether it is the question of excess capital, PCA banks relaxations, SMEs, whatever it, all these issues let there be a proper argument in the public domain, let people, experts weigh in as well and let us arrive at compromises which are acceptable to a significant section of the unbiased observers. If that comes about great.

The fear the market continues to have given the legacy of what we have gone through with Urjit Patel putting in his papers is that the government might be pushing through its agenda and what we might come out with as solutions might be something which is more going towards the government's immediate requirements, is that happens the markets will be disappointed. So, I hope that does not happen and I hope better sense prevails. In any case one positive which has emerged is clearly a better communication channel between all stakeholders which is clearly welcome.

Shereen: What would your expectation be now as we look forward?

Virmani: Your discussion is a good demonstration of what I am saying. Ananth and I have agreed after a discussion, we are able to reach a professional agreement. So, I think 70 percent or more of the cases can and will be professionally resolved. There may be 30 percent or less where we may still have questions whether the RBI is really acting properly or independently.

Shereen: No decisions in that sense being taken by the RBI at the first board meeting chaired by new governor Shaktikanta Das – both as far as issues of governance are concerned saying that they would require more time to deliberate and on matters related to liquidity, credit delivery and currency management etc as well, suggesting that further examination is required. Do you believe that when it comes to governance related issues that we could see this pushed off the table as a priority item now that there has been a leadership change?

Bhagwati: Priorities remain the same. It is natural that RBI and government will have somewhat different perspectives. The RBI is concerned about inflation, it is concerned about financial sector integrity. It is concerned about overall growth but the government obviously has a broader mandate and they have an all-encompassing concern about how to grow employment opportunities and how to push the economy onto a higher trajectory of growth.

Ultimately if I look at what is going on more recently, it is how to get project financing back on track. So, those are the differences in the priorities between the two and I am hoping with this new beginning, with the new RBI governor we will see that the discussions between the two will happen behind the closed doors and we don’t hear too much of it.

I think it is natural that there will be differences but those can be ironed out.

Shereen: You are saying that you hope these differences will be ironed out behind closed doors but I want to draw your attention to comments that have come in from several ministers within the cabinet. Minister Goyal yesterday tweeting that one cannot have power without being responsible to use that power, at the end of the day public interest is paramount, this in the context of autonomy of institutions. The Finance Minister also very categorically suggesting that they have spoken with the RBI in the past under Urjit Patel and he said, “I cannot imagine how bringing issues on credit and liquidity to the attention of the RBI can lead to a question of autonomy of the Central Bank.” So the government in a sense making it very clear that Urjit Patel didn’t deliver on promise of growth and if you look at the comments that have come in from the new governor, he did very categorically state that financial stability or monetary possibility is not the only remit of the RBI and growth is and he quoted the preamble of the RBI Act. What do you believe now is going to be the way forward given the fact that North Block has made its position very clear?

Bhagwati: You referred to some statements about power and accountability, everybody will agree that these are the two sides of the same coin. I think it is about as obvious as saying that the Sun comes out from the East. Every entity, every individual, which or who enjoys some power must also be accountable to someone and I don’t want to get into what former governor Urjit Patel did or said. I would rather talk in terms of the institution. I don’t think any governor of the RBI would ever say that they have absolutely no concern about economic growth.

Economic growth is a concept which people can address or come at from so many different angles. Do we do something in the short-term which hurts us in the medium to long-term? It is the usual thing, that governments’ because of their political compulsions, after all they have to win elections, sometimes have to look at things at the short-term and the RBI because they are appointees and they have fixed terms, which could be renewed, they have the luxury or the benefit to take a look at things over the longer-term. Now these two views may not exactly coincide. For instance inflation, the MPC says that they are going to keep rates on hold that was their decision at the last meeting.

Some very well informed and knowledgeable people might have said that no, it was high time to cut rates, particularly now that we know CPI has come down sharply and WPI numbers are also down, so this not something that I would find fault with anyone. Because the longer-term objectives for this country are to promoter employment opportunities and sustain high growth but how to arrive at those two desired objectives, I think intelligent reasonable people can differ.

Shereen: You are right that there can be differences of opinion. What is your opinion on the issue that is currently being considered? Given where we see the economy today, you talked about inflation, the fact that the growth has come in at three-quarter low at this point in time but clamour seems to be building for a fiscal stimulus especially in context of the electoral setback for the ruling party. Do you believe that that is the need of the hour and what would you be concerned about as this calmour picks up?

Bhagwati: One number cannot encompass everything that is happening in the economy and I would look more at capital expenditure. If you look at numbers for capex, if that is something that the government embarks on in a considered manner. I am emphasizing that capital expenditure as distinct from consumption or current expenditure and it is thought out well both in terms of how much would be spend and how it would be spent, through which channels it would be spent, you might recall all that hoopla about projects between 2008, 2012 or 2013 of public-private-partnerships and so on, a number of institutions have come to grief, when I institutions I am referring to public sector banks because it wasn’t though out.

Now coming back to government’s fiscal deficit targets as I said at the outset of my response to your question, I believe that is not something which is sacrosanct and whether 3.2 percent of GDP is the right number and 3.5 percent is the wrong number, I don’t know I would not be averse to 3.5 or even a 3.6 percent and I wouldn’t worry too much about this rating agencies. These are the same rating agencies Moody’s and S&P which gave AAA ratings to mortgaged backed securities in 2005, 2006, 2007.

First Published:Dec 15, 2018 10:07 PM IST