The impasse between the finance ministry and Reserve Bank of India (RBI) on at least one crucial issue has come to an end. Both have agreed to meet half-way on the revision of the central bank’s staff. The deadlock over the past four months arose after the finance ministry asked RBI to take its approval before revising the compensation package. RBI replied that it was not obliged to do so.
Traditionally, RBI merely informs the ministry about staff pay revisions after administrative orders are issued. Pay revisions in RBI are decided after discussions between its top management, the human resources department and employees’ union.
But, according to a new compromise formula, RBI has agreed to ‘brief’ finance ministry officials about the pay revision before implementing it. However, the central bank insists it would not seek the government’s approval.
Sources said the compromise was hammered out at a meeting between RBI Governor D Subbarao and Finance Secretary Ashok Chawla. After the agreement was finally sealed last week, RBI has issued an administrative order to this effect. The central bank will also continue its earlier tradition of sending details of the salary hikes in writing to the government for its information after implementation.
| MONEY TRAIL |
| * RBI usually informs finance ministry about revisions only after administrative orders are issued |
| * Ministry asked RBI to take its approval before pay hikes; RBI replied it was not obliged to do so |
| * Under compromise, RBI agreed to ‘brief’ ministry about hikes before they are implemented |
| * Deal was struck by RBI Governor D Subbarao and Finance Secretary Ashok Chawla |
The extent of the pay hikes — in line with those for public sector bank employees at 17.5 per cent — was not a matter of debate, sources said. They will benefit 20,000 central bank staff members and come into effect retrospectively from November 2007. Wage revisions in the central bank take place once in five years.
The ministry has been trying to intervene in central bank compensation issues for some years now. According to RBI sources, the finance ministry wrote to RBI several years ago saying it was in “concurrence” with a proposed pay revision. However, the central bank had replied to the ministry saying the pay hike proposal details were meant only for information and not for concurrence. Again, in 2008, North Block had reversed a pension update for pre-1997 RBI retirees.
The compromise over the latest pay revision comes in the backdrop of continuing tension between the finance ministry and the central bank. RBI has already expressed its discomfort with the ministry’s proposals at least twice this year. The first was over the ministry’s decision to refer all regulatory disputes on hybrid financial products to a committee headed by the finance minister.
RBI also expressed its concern about the proposed Financial Stability and Development Council on the grounds that financial stability should be the exclusive mandate of the central bank.