Autonomy under threat

Apart from causing hardships to people and short-term disruption to the economy the demonetisation decision has done tremendous damage to the Reserve Bank of India as an institution. Sadly, the RBI became a willing partner, harming its own reputation. Instead of asking for sufficient time to do its own assessment of the impact of a sudden withdrawal of 86 per cent of the country's currency and making adequate preparations to minimise dislocation, the RBI simply toed the government line. Governor Urjit Patel allowed himself to be rushed into implementing a hurriedly taken decision, exposing the bank staff to public criticism and even physical attacks. 

Before or after the November 8 decision it was expected of the RBI to tell the country how much was the cost of disruption to the economy and how long the pain to the public would last. Instead, inexplicable silence was the response. Now that the currency-related chaos has eased and pressure on them subsided, the RBI employees have spoken up. In a letter to the Governor they have accused the government of “impinging on RBI autonomy” and urged Patel to end “unnecessary interventions” by the Finance Ministry. At least three former Governors of the RBI — Dr Manmohan Singh, YV Reddy and Bimal Jalan — and two former Deputy Governors Usha Thorat and KC Chakrabarty have publicly pointed to the worrying erosion of institutional independence. So has noted economist Amartya Sen, saying “I don’t think (the) RBI decides anything at this time”.

Faced with such scathing observations, neither the RBI nor the government has deemed it fit to respond or even reassure the country that RBI autonomy would be protected and respected in future. Lack of transparency in decision-making too has surfaced, both at the RBI and government levels. Why it should take the RBI so long to release an estimate of how much of the demonetised cash has returned to the banking system is intriguing. The RBI need not reduce itself to a government department; though the in-charge of an institution has a sacred duty to assert and defend its autonomy.