Ever widening inequality

A well presented article on a topic which has been missing a serious debate and follow up action. The gap between haves and have nots has been widening very fast with the full knowledge of our politicians , buraucrats , academicians and thinkers. The way policies are enunciated and implemented give an impression that this society does not have any  poverty and by and large all families are well placed financially. The gap between the rich and the poor widens fast and the reasons are not far to seek.The taxation policy pursued is the culprit behind ever widening inequality. A person earning a salary of Rs 3 lakhs has to pay Income tax @ 10 % whereas a person earning a dividend of Rs 1000 crores need not pay a single paise tax. Similarly a person who earns a minimum wage of Rs 100 a day has to maintain a family of three or five members where as  an industrialist , a bureaucrat , a politician, a self employed professional like Doctor, advocate, chartered accountant, real estate broker, share broker, a whole sale merchant ,or a luxurious car dealer earns in lakhs and crores and most of their expenditures including family maintenance are accounted for in such a way that their earnings are fully saved.Here opportunitoies are made to make the rich richer and the poor poorer and wonderful interpretations and explanations are widely publicised to conviince the poorer that good days are ahead for them what ever may be the policies pursued. This has been going on for decades and the black money generation through all mal practices knowingly or unknowingly allowed to be perpetrated have helped the rich to widen the gap beyond recognition or noticeable level. It is high time a debate is called for as rightly suggested by the author involving all serious thinking politicians, academicians, social reformers and all well wishers of the nation and its people.   

Dr T V Gopalakrishnan

(This comment is given in Business Standard).

PSBs and Indra Dhanush

High sounding jargons and words are no doubt  soothing to the ears and can be a boost to capital market sentiments  but the PSBs performance  based on the Indra Dhanush ie  seven prongs – appointments, bank board bureau, capitalisation, de-stressing PSBs, empowerment, framework of accountability and governance reforms is not guaranteed as long as the  Human Resources issue which is a major risk right from top to bottom  faced by the banks now is not adequately and quickly  addressed. 

Appointment.

This is a major risk the PSBs face as the Boards of PSBs as of today are neither professional nor committed  nor accountable and knowledgeable. The selection of Directors to the Board leaves much to be desired. Directors require thorough knowledge of banking business along with the skills to develop business with an understanding of the Economy, the risks that can emanate from the Government Policies, Regulatory Prescriptions, the linkages with the  international economy and the changes that can have a bearing on the operations of banks , technological advancements and the need to ensure close compatibility of the human resources skill and the technology on an ongoing basis etc etc. Any Tom Dick and Harry cannot find a place on Banks boards. Who will ensure this in our scheme of things where the Government, the bureaucrats and politicians have a say always and everywhere directly or indirectly in the functioning of banks. Appointment of Auditors is equally  crucial as they decide how the balance sheets of banks should appear and decide as to how to project the assets and liabilities camouflaging many items in consultation with the Board or the key person identified by the Board.

The top management, middle management and Human resources at all levels need lot of exposure, knowledge, experts in specialised areas like Forex, derivatives treasury management, Credit portfolio, Asset Liability Management and Risk management etc. The tendency to save costs on training to HR is a major casualty in Banking  and even the regulator seems to have ignored this aspect with the Closure of  the Bankers Training College. This has badly affected the transmission of Monetary Policy and the over all working of banks. It is a surprise to observe that many employees even do not know the existence of the RBI leave alone the regulatory role of RBI, ist role as  monetary authority etc.  This has already impacted the working of banks to a great extent.   

Bank Board Bureau:

The Constitution of the Board and the mode of Selection of the Board Members and its distinct Role to enhance the improvements in PSBs functioning is not very clear and convincing.

Capitalisation:

The present approach to capitalise the banks using Budgetary resources is highly questionable. The banks should generate reasonable profits to enhance capital and minimise the capital requirements  by minimising the risks through risky and sticky advances and investments. Here  the professionalism natters a lot. Banks should know how to conduct its advances portfolio and should bring the envisaged discipline on the part of the borrowers and the banks themselves. Rating of borrowers and levying of penalty for misconduct in the utilisation of banks funds need to be seriously viewed and made a  punishable offence. Capital infusion if at all found essential it should be linked to the performance of Banks Boards, Top management and the contribution that the banks make towards credit expansion, financial Inclusion, agricultural expansion, industrial growth,  support to exports  etc. Norms need to be fixed before induction of tax payers money.RBI's rating and opinion should be sought before providing additional capital .

Distressing PSBs and empowerment.

The interference by the Government Banks Bureau and the regulators should be kept to the barest minimum. This is easier said than done. 

Frame work of accountability and Governance Reforms.

Need proper definition, implementation and periodical examination by an agency taking RBI into Confidence. Can this happen in our set up? 

Dr T V Gopalakrishnan

RBI needs to do justice to its pensioners.

RBI has to take care of its pensioners by giving them their entitled share of periodical revision of pension which requires only an insignificant percentage of the surplus transferred to the Government. This is perhaps the only institution which is free of corruption and having the human resources who maintain highest level of professional competence, honesty and integrity.  They do not get any productivity bonus, stock option and share in the surplus. What they get only is a pittance compared to the market trends and pensioners even do not get that is a fact . Pensioners conditions are going from bad to worse and politicians and bureaucrats cannot play with their lives just to satisfy their ego and perhaps intolerance of the recognition RBI gets from all over the country and the world for its outstanding contribution in maintaining monetary stability and providing the much needed support to the Government and the economy. RBI pensioners cannot openly say that they have Retired from RBI and are not able to make both ends meet with the meagre pension they get..RBI's image also goes down when the pensioners  particularly those who have retired in the  early 1990 s and have been denied the  updation of pension on par with Central government Pensioners reveal their pension to any outsider. What is preventing the Government in granting the enhancement of pension when RBI has adequate funds exclusively created for this purpose is really a surprise and the Government tom toms every now and then saying that RBI has independence and it never interferes in its functions. Even the genuine need to adequately meet the pension requirements of its retired staff requires the clearance from the Government although there is a written agreement to that effect and RBI has made adequate reserves exclusively to meet the pension revision is what the position is in reality! 

Dr T V Gopalakrishnan

Ordinary masses and Retail Prices

Ordinary masses feel the pinch of rising prices is a fact although officially inflation has come down. At retail market the prices are not coming down becuase of several factors where RBI has absolutely no say. The oil prices have come down but the transport costs have not come down. On the contrary, the transport costs have always been on the increase due to Toll Charges, Service Tax, labour costs, bribes paid at various levels right from the producers place to the retail points.There are some standardised market practices which do not stand justice or prudence. For removal of garbages from retail shops and market places apart from Corporate and muncipal levies one has to pay bribe to get the place some what clean and the cost is naturally borne by the retail customer. Rough estimate would indicate that retail prices can be brought down at least  by 25 % from the prevailing rates if banks take care of the finacial needs of retail borrowers replacing thereby the money lenders who operate in the market places particularly in retail and whole sale vegetable and fruit markets, bribes paid at various levels are eliminated, reduction in the oil prices are systematically passed on to the consumers, efficiency standard get improved, in sorage, transportation and marketing of products with speed and less wastage etc. Peoples' participation by various means need to be ensured and there should be social audits. Governence is largely missing or ineffective causing pressure on retail prices where RBI has only very limited say.    

Dr T V Gopalakrishnan

( Comments given to BS on 10/8/15).

Clear message from RBI

The bimonthly policy review of RBI is a very clear message that the trust and understanding between the Government and RBI have been absent and RBI despite some of the benign economic fundamentals particularly inflation among other things , preferred to  be conservative and keep its policy rates unchanged citing some reasons which cannot be challenged. This was an opportunity for RBI to give a psychological boost to the economy taking advantage of the so far favorable monsoon, fall in international oil prices, stability of the rupee and decline in the current account deficit thanks to fall in gold and oil prices and reduced import bill, and some of the positive steps already taken by the Government to improve ease of doing business and augment industrial production. The loss of opportunity and the time cannot be regained and the recurring consequences the economy is subjected to due to the mistrust and lack of coordination cannot be made up so easily is what the RBI and the Government need to realize and act upon. 

Dr T V Gopalakrishnan  

       5/8/15.

( Letter sent to ET on Monetary Policy )

RBI prefers to be cautious

RBI true to pattern, continues to prefer to be conservative and does not want perhaps to recognize the benign inflationary conditions and pass on the benefit by reducing   the policy rates very badly needed by the economy for a   psychological boost at least .The reasons adduced by RBI do not sound very convincing as the inflation expectations in an economy where agriculture is always a gambling on monsoon cannot be favorably predicted  to perfection even though the monsoon deficiency is  only around 3 % as of June. The transmission of policy rates reductions out of 0.75 % effected  during this year has been only 0.30 % is  a known phenomenon in Indian banks thanks to their poor capital base compared to the ever increasing bad loans, their compulsions to adhere to preferred credits  as dictated by the government, mobilize deposits at a higher rate than that is permissible because of a competitive environment created by the Government offering  better rates on some of the savings instruments, provide adequate credit support to the government through the SLR route which incidentally is more safe and liquid. Added to it the threat from the external environment particularly the Federal Reserves moves and not so conducive euro economic environment. Perhaps RBI may have a strong message to the Government that more needs to be done administratively to improve the supply chain to reduce the food prices, to remove the other constraints to improve the productivity both in agricultural and industrial areas which are more affected not by inadequacy of credit. However, the lack of coordination and understanding between the Government and the RBI is very much visible in the RBI’s approach to over all policy stance is what the Bimonthly Policy review reveals.   

Dr T V Gopalakrishnan      

(Reaction to the Monetary Policy review.)

RBI's Autonomy is highly flexible

The RBI's independence depends on the FM's and Governor's good timings and changes in the economy is what one can infer. It also depends  on who has brought  the Governor to RBI and further how the Governor conducts himself and  obliges the Government in power. The Government expects RBI to act as per the thinking and philosophy of the Government and the action of the  Governor is dependent on his diplomacy to handle the FM. He can always say YES to the FM and deliver just opposite and justify his actions and Convince the FM that why he has done so and how his actions have helped FM. The FM  in turn, if gets Convinced apprciates  RBI's independence and Governors' independent thinking. If not Convinced , the FM does the same thing to RBI.He tells something to the Governor and does just opposite of what he has told. He   directs the Secretary on RBI  Board  to act in a particularl manner and  proves to be  an irrirtaion and stumbling block for all RBI's moves. The Government takes actions ignoring the RBI's presence and without taking  into confidence the RBI for all its policies. Love and hate and hide and seek games are always played between the Government and RBI keeping the  so called autonomous position of RBI in tact. Finally the changes in the Fundamentals of the economy if any justify the stance of both RBI and the Government and that decide whether RBI has autonomy or not? Unfortunately since Dr SubbaRao took over the reins of RBI the economic fundamentals never favoured and the gap between the Government and RBI widened giving rise to the controversy on RBI' s autonomy. The induction of the new Governor by the UPA Government and subsequent take over of the Government by NDA have created a fresh round of controversy on RBI's autonomy and again unfortunately the economic fundamentals have not registered favourable changes to determine whether RBI has the independence or not. RBI autonomy cannot be defined and determined as it often fluctaues depending on the FM and the Governor in power and changes in the economic fundamenrtals. .

Dr T V Gopalakrishnan

(This comment given in BS is in response to an article RBI  a fly in the bottle that apperaed on the 9th August 2015). 

TRUST BETWEEN THE GOVERNMENT AND RBI

The trust between the Government and RBI is though critical but this is what is missing these days and it reflects fully on the IFC code recently brought out. The fact that Government is not comfortable with RBI for its strong and highly professional stand on the monetary policy has been irritating the Government which has its own populistic agenda. It is unfortunate that the Government which has been enjoying the support of RBI to keep a strong and dynamic financial system has not been able to assess the real value of RBI in keeping the monetary and price stability despite several political and economic pressures from both domestic and international scenario.

Dr T V Gopalakrishnan

RBI should remain strong as ever

The article well articulated and addressed though to CPM is a timely warning to the Government for weakening an Institution which has well withstood the test of time and saved the economy from serious catastrophe imposed by external economies .RBI has saved the country from very serious crises like Asian Crisis of 1997, the 2007 Global Financial debacle, and other periodical economic disturbances caused both in advanced and emerging economies. The role of RBI in keeping the economy particularly its Financial system and the Rupee reasonably stable has been well acknowledged world over and the Governors of RBI have earned a special status among Central Banks Heads. is an acknowledged truth. Though RBI' autonomy is only in paper, it has some how managed to successfully carry out its functions independently despite all imaginable political pressures and keep itself insulated from the influence of the Governments in power thanks to the ingenuity with which all the Governors perhaps with some very few exceptions functioned. As an Institution,RBI has remained free from corruption and successful in keeping its professional competence in ensuring a sound and healthy financial system despite all possible interference s from the Governments. The Financial Code proposed if implemented in its present form will sound the death knell for RBI and it will become another white elephant in the economy.Hope wiser counsel will prevail and the Government will act sensibly. Governments will come and Go and but Institutions like RBI have to remain strong and perform to take the economy moving from strength to strength. Maintaining monetary stability in an economy  in an atmosphere with all politico social economic pressures under democratic and populistic approaches is not an easy task for any Central Bank but RBI has successfully managed it will speak volumes for its professional competence and institutional integrity.  

Dr T V Gopalakrishnan

( This comment appeared in Business standard against the article ON RBI by TCA Srinivasa Raghavan on the 1st of August).