In RBI vs Finance Ministry fight, dissent takes the spotlight

According to reports, Finance Secretary will be putting up a dissent note in Jalan committee report and he is not going to be the first one to put in a dissent note in a financial sector report

According to media reports, Finance Secretary Subhash Chandra Garg will be putting up a dissent note in the report by the Bimal Jalan committee reviewing the capital framework of the Reserve Bank of India (RBI). One key recommendation will be how much of the central bank’s reserves should be transferred to the government. Garg has apparently suggested a one-time lump sum transfer. 

Garg is not the first to put in a dissent note in a financial sector report. In fact, it is rare to find any committee report for the financial sector since 2000 in which there hasn’t been a dissent note by at least one member. If he does so, however, he would be the first finance secretary to have put in a dissent note so far in the 20-odd reports commissioned for the sector.  

The most famous dissent was the “High Powered Expert Committee on Making Mumbai an International Financial Centre” report of 2007. It was colloquially known by the name of its chairman, Percy Mistry, who made his dissent known by declining to sign the final report. The Percy Mistry report was signed by the other 14 members; predictably, Mistry’s absence made the news — and Mumbai never made the transition to an international financial centre. 

In 2006, economist Surjit Bhalla put in a dissent note as member of the second SS Tarapore committee report on capital account convertibility. This was known as the committee on “fuller” capital account convertibility, since there was an earlier report on the same theme by the committee in 1997. The earlier one did not have a dissent note. Some recommendations from both these committees became part of the policy framework.

The maximum number of members to put in a dissent note was the Financial Sector Legislative Reforms Commission chaired by Justice Srikrishna to streamline and update sectoral laws. Of the eight members who wrote the report in 2013, four also penned dissent notes. 

Discussions on the report are peppered with these dissent notes, especially the one by P J Nayak. As former joint secretary, capital markets, and former chairman of Axis Bank, Nayak’s words of caution about transferring power from the RBI to the finance ministry effectively killed the report. One key proposal became the Financial Resolution and Deposit Insurance (FRDI) Bill, 2017, but the uproar over a clause diluting depositors’ rights put it on the back burner.

Nayak himself was lucky as the report he chaired in 2014 as the “Committee to Review Governance of Boards of Banks” had no dissent notes. No wonder its prescription for bank governance in India has become the standard reforms template since. 

There is a pattern to these dissent notes. Most of them have been about reconciling differences between the RBI and the finance ministry, the underlying issue being which institution will be asked to cede power. Committees were expected to narrow the differences. In most cases, that never happened, so the tensions persist with varying intensity. 

For instance, in 2018, the finance secretary chaired an Inter-Ministerial Committee for Finalisation of Amendments to the Payment and Settlement Act. The committee had seven members, of whom the RBI representative, S Ganesh Kumar, executive director, had put in a dissent note. At stake was who will get to police the emerging fintech sector. 

No surprise, then, the practice has spread to other entities in the financial sector. Economist Abhijit Sen as member of the 14th Finance Commission had put in a dissent note. The commission was chaired by Y V Reddy. Sen criticised the sharp bump up in the allocation to states from the divisible pool. Sen was the first member of a Finance Commission member to write a dissent note. 

Essentially, every chair of a committee on the financial sector has had to wrestle with dissents. The N K Singh-led committee review of the Fiscal Responsibility and Budget Management Act got its share from then Chief Economic Advisor Arvind Subramanian in 2017.  

Raghuram Rajan chaired two reports for the Planning Commission, one of them after he was appointed chief economic advisor. The one on financial sector reforms, which he chaired before joining the government, went through peacefully,  but the “committee for evolving a composite development index of states” which submitted its report in 2013, found itself saddled with a dissent note from Shaibal Gupta of Asian Development Research Institute. Gupta opposed the method crafted by the committee to decide if a state could get special status. This, too, got more salience than the report, which was quietly buried. 

The Seventh Pay Commission with just three members has notched up a record for the largest number of dissent notes — well over 60. They differed on treatment of defence services, whether IAS entrants should hold an “edge” over other services on number of years, on pay within the central services on promotion prospects, on lateral entry and much more. There were so many that it is often difficult to make out if there is a considered view for the government to adopt or simply a recital of the dissenting views. 

Even when there was no dissent on record, such as the Bimal Jalan committee for “Review of Ownership and Governance of Market Infrastructure Institutions”, reports created news for having glossed over dissensions. That report submitted in 2010 set up a furious debate between the stock exchanges with both the finance ministry and the Securities and Exchange Board of India eventually distancing themselves from the conclusion. Jalan, too, finally distanced himself from the report.