It would have to be a month of Sundays, I had always thought, when I would appeal to the CPI-M for help. But stranger things have happened, so here goes.
Basically, Mr Yechury, Sir, the problem is this: the new financial code proposed by the finance ministry - out of naivete, I suspect, rather than knavery - will neuter the Reserve Bank of India (RBI) which will lose its pre-eminence and dominance of the financial sector. Then there will be no agency left to control the beast that resides in the financial markets.
My case is not that it is only the RBI that should hold that position; it is that some institution should. Without such a body, the Indian economy will - if I may indulge in VR Krishna Iyer-type hyperbole - be like a hapless leaf on the turbulent and merciless seas of global finance.
There is one man who can prevent it: Raghuram Rajan, the current governor of the RBI, who has just a little over a year left in the job. One question that arises is should he, in all good conscience, supervise the dismantling of the dominance of the institution over which he presides? Because, have no doubt, that is what the new financial code seeks to do - and at whose behest we all know.
Dr Rajan is brainy. He is also highly experienced, especially in business economics. He must therefore be aware of the enormous international financial powers that are at work. I am also certain that he realises who its intellectual agents in India are. He also knows, or should know, that the politicians in the finance ministry have a very short-term focus.
The combination of these factors is proving to be steadily lethal for the RBI. If all the proposed changes become law, the barbarians, who are already at the gate, will have been allowed in.
Governor's role
Someone needs to tell the prime minister that the finance ministry should cease and desist forthwith. Usha Thorat, a former deputy governor of the RBI, has already explained this. She says the time is not ripe for the sort of changes being proposed.
Dr Rajan should - if he has not already quietly done so - explain these negative aspects to the PM. Of course, he runs the risk of the PM himself may be having promised greater market access to the Americans. But at least he would have done his duty.
There is always the possibility that Dr Rajan approves of whatever is being suggested by the Code. If so, Mr Yechury, sir, we have a real problem. And that's where the CPI-M needs to step in: because dismantling the RBI's dominance of the financial sector is the last thing India needs when so many other institutions are, so to speak, "evolving" in the wrong direction.
What is being sought by the Code is exactly the sort of permissiveness in the financial sector that led to the global collapse in 2008. Also being sought is a neutering of the one agency that has stood the test of time in protecting India's economic interests.
This is not the first time such an attack has been mounted. It was tried in 2007 via the Percy Mistry Report on making Mumbai a global financial centre. It was tried again - this time via none other than the Raghuram Rajan Committee report - in 2009. That committee had been set up by the Planning Commission and pretty much boycotted by the RBI.
Thanks to the 2008 global financial crisis, both went into cold storage. But now a third attempt is being made via the FSLRC report. Some of its worst recommendations may end up becoming law.
Barbarians at the gate
You may well ask: what's so special about the RBI? The answer lies in the preamble of the RBI Act, which charges the RBI with "maintaining the monetary stability of India" no less.
This phrase - monetary stability - has often been very narrowly interpreted to mean inflation control and central bank independence. Both are necessary components but they are not the only ones that guarantee "monetary stability". What really guarantees stability is the ability and the power to keep an eye on global speculators, who can wreak complete havoc. Some of the big speculators are now posing as philanthropists and philosophers - but it is just a pose. The government should be wary.
If the government can't - or won't - keep the best interests of the country at heart, the Opposition, especially the CPI-M, should. It should realise that all this talk about the independence of the RBI and the veto power of the governor in the Monetary Policy Committee are just red herrings. Central bank independence is a very jolly myth; and the monetary policy thing is just something for economists to sound off on.
The real agenda is different.
Disclosure: The writer has served as a consultant to the RBI
Disclaimer: These are personal views of the writer. They do not necessarily reflect the opinion of www.business-standard.com or the Business Standard newspaper
