Eleventh-hour wisdom

The government should decide early on important appointments

No modern corporation would take a decision on the appointment of its chief executive a few days before the announcement is due and be apologetic about it, saying that further delay was not possible given the exigencies of the situation. That is precisely what the Union government has done in giving Reserve Bank of India Governor Duvvuri Subbarao a two-year extension 22 days before his term expires. Union Finance Minister Pranab Mukherjee claimed that there was no reason why any decision was required to be taken at this point in time since “there was time till September”! True, when Dr Subbarao was appointed RBI governor in September 2008, his appointment was announced five days before the end of the five-year term of Dr Y V Reddy, the then RBI governor. Appointments to senior positions in the Indian government – including the Cabinet, foreign and other senior secretaries, heads of intelliegence agencies and large public sector corporations – are all made at the eleventh hour. This policy of eleventh-hour appointments reveals the kinds of pulls and pressures that operate in such appointments and, in doing so, devalues the final decision, however good. Moreover, the newly appointed person is given very little time to familiarise herself with the job — most of the learning takes place on the job. In recent months senior officials, even in critical ministries, have walked through revolving doors spending barely weeks in a job before retiring. None of this is acceptable modern management practice for a large nation with a professional bureaucracy.

In the specific case of Governor Subbarao’s extension, Mr Mukherjee’s bizarre explanation that this was done because of the uncertain global environment only underscores the point that such decisions ought to be taken well in advance. Mr Mukherjee seems to imply that the government has been forced by unexpected global developments to take a decision on the appointment, or the extension of tenure, of a central bank governor at the eleventh hour, rather than a minute before midnight! This is a typical Indian response, which justifies last-minute action on grounds of compulsion and force of circumstance, instead of explaining why action was not taken in advance, which would have averted the need for an eleventh-hour response.

Better late than never, the government has done well to extend Dr Subbarao’s tenure because he has offered the central bank mature and reassuring leadership in difficult times. Prime Minister Manmohan Singh has done well to reassure the banking and financial circles and macroeconomic authorities in India and abroad that professionalism will matter more in such appointments.

In the coming weeks, Dr Subbarao will have to bite the bullet on several important policy decisions, including the policy on new private sector bank licences. He would now be able to continue to take an independent and professional view, without being pushed around by politicians. To be sure, Dr Subbarao has not pulled any punches. Nor has he shied away from making his views known on a variety of issues such as the distinction between RBI as an institution and other financial sector regulators, and the limits to monetary policy when fiscal policy runs amok. RBI has maintained its focus on fighting inflation and must continue to do so even as it points to the limitations of monetary policy and to the need for a wider policy response.