Lower RBI dividend not unexpected: Sanjeev Sanyal

We are trying to move from a patronage-based society to a rule based society, he adds

If a state expects its citizens to follow rules, it should tell the rules clearly, says Principal Economic Advisor Sanjeev Sanyal, days after the release of the second volume of the Economic Survey. In an interview to Dilasha Seth, he talks about the proposed Transparency of Rules Act and the Reserve Bank of India’s (RBI’s) monetary policy, among other issues. Edited excerpts:
 
The Economic Survey has proposed Transparency of Rules Act (TORA). While it appears to be an interesting and useful concept, what was the trigger for such an idea?
The idea behind TORA is that we are trying to move from a patronage-based society to a rule-based society. If the state expects its citizens to follow rules, it should tell the rules clearly. After all, the basis of our legal system is that not knowing the rule is not a defence. You cannot go and say that I didn’t know the rule. This leads to inefficiency, harassment and legal disputes. If you want to make a small extension in your house, get some sort of licence or set up a business, it is almost impossible to find those rules in one place.

 
So, the onus will be on the state to state the rules. How challenging will be its implementation, in terms of acceptance within the government and the actual roll-out?

The idea is that the rules could themselves be rubbish, but at least tell me as a citizen what the rules are. We can have a longer debate on what the rules should be. There are a bunch of rules many people do not know about. Very often, civil servants themselves don’t know what the rules are. Not only is the technology easy, it barely costs anything. Wikipedia does it. You need not coordinate across the country for this. You can do it one department at a time. All you need to do it, when the process is complete you call it TORA-compliant. We will have debates, and then one can have a draft Bill on how this law will be.

 
The Survey mentions that a rule not explicitly mentioned on the website of a government department would be deemed not to apply. Will that not lead to interpretational issues with some following it and others not?
At some level it is quite draconian. We need to have a public debate on it. There can be unintended consequences, of doing something fundamentally major. We are saying that citizens will only listen to the state when clearly told what to do. It is a very fundamental shift in the relationship between the citizen and the state, more than the Right to Information Act (RTI).

 
Real estate companies being moved for insolvency has left homebuyers in the lurch. How can they be compensated?
Homebuyers were affected from Day One. Now we are trying to fix it for them. They wouldn’t have got the possession anyway. The existing set up was not working. It is a bankrupt company. Some deal can be struck between the government and the banks and the house buyers. Why should the promoters be involved in the discussion? They have gone bust, so they should leave. The houses are still there half-built etc, so they may be auctioned or given to investors.

 
The points made in the Survey over the inflation targeting by the Reserve Bank of India appear to be quite scathing?
Our view has been for a while that there are deflationary pressures in the system and the RBI should take that into account. When inflation is down from seven-eight per cent to just over one per cent, shouldn’t rates come down commensurately?
 
But very low rates do not necessarily spur investments. Right?
Sure. But a lower rate does not hurt. It is definitely not a sufficient condition but may be a necessary condition for investments.
 
Demonetisation led to lowering of dividend by the RBI to the government by half. Will it impact the Centre’s fiscal health?

I do not think there will be an impact. The numbers are not entirely unexpected. It is a one-time adjustment anyway. Fiscal deficit will remain within the range. It was already anticipated that there will be a shock like this. Besides, the RBI hasn’t finished counting yet, so we still need to know details.