The evidence continues to mount that the major policy-makers in the Manmohan Singh government are not pulling together as they should. The two latest instances include the Reserve Bank's "discussion paper" issued a few days ago on the ideal corporate structure for financial conglomerates. This seems like an almost transparent attempt to shoot down ICICI Bank's proposal for creating an intermediate subsidiary that would hold its operating subsidiaries in the fields of insurance and asset management. The discussion paper has tell-tale signs of being a document that has been put together hastily, perhaps after the Foreign Investment Promotion Board approved ICICI Bank's proposal recently, though with the rider that it is subject to RBI concurrence. The second instance of recent weeks is the Planning Commission's move to set up a committee, under Raghuram Rajan, to look at what reforms are required in the financial sector. Such a committee would ordinarily have been set up by either the RBI itself or by the finance ministry. What makes the initiative odder still is that the Rajan committee has no representative from the RBI on it "" unlike, say, the two Narasimham committees that laid out a roadmap for financial sector reforms in the 1990s. | |
| What makes this evidence of pulling in different directions hard to understand is the fact that the three principal protagonists (Finance Minister P Chidambaram, Planning Commission Deputy Chairman Montek Ahluwalia and Reserve Bank Governor Y Venugopal Reddy) are people who have worked together in different capacities over many years and are all very capable and mature individuals. They may not (and should not) agree on all issues, of course, but to work at seeming cross-purposes is something else altogether "" like one seeking to check-mate or pre-empt the other as in the ICICI Bank case. |
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| This has as a backdrop the record of ministerial pronouncements in the wake of monetary and credit policy initiatives by the Reserve Bank, pronouncements that seemed to run counter to what the central bank was trying to do. The defence of this conduct has been that the government is the majority if not sole shareholder in the public sector banks, and it is therefore within its rights to communicate its desire to the bank chief executives. But this is clearly not the whole story, for in one episode, Reserve Bank nominees on bank boards even stayed away from meetings of these boards, apparently in protest. |
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| The fourth major policy-maker in the economic field is the minister for commerce and industry, Kamal Nath. It is true that commerce and finance have a history of not seeing eye to eye on many issues, including tariff levels and export incentives, not to mention the rupee's external value, but this is only to be expected since the objectives and worldviews of the two ministries are quite different. But even after conceding this, the recent record is quite telling. For, the commerce ministry has announced a series of changes in export incentives which the finance ministry now disagrees with and apparently wants to roll them back. Clearly, it is wrong to assume that cabinet committees on economic affairs provide a forum for the government to take a common view on such issues, and ministers are functioning in their own orbits. It is time the Prime Minister asked himself whether this is the way in which he would like his government, and his key economic policy-makers, to function. |
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