Right Decision For The Wrong Reasons

Last Saturday, Reserve Bank of India governor, Bimal Jalan, was in Salboni (West Bengal) to inaugurate the main currency printing press of Bharatiya Reserve Bank Note Mudran Limited, which is RBI's wholly owned subsidiary. In about two months from now, the new press will achieve its full rated capacity, thereby fulfilling the country's entire demand for currency notes for the next 10 years.

The nation should heave a sigh of relief. Periodic shortages of currency notes of different denominations should come to an end. Soiled and tattered notes that continue to remain in circulation should get replaced with new ones. A new policy to introduce clean notes is now being formulated in consultation with Arthur Andersen. Also, the dependence on imported currency notes will be over. And the RBI will enhance its ability and flexibility to introduce new designs and devices to counter the menace of fake notes.

 

An obvious question arises: Given the advantages of creating indigenous capacity for printing currency notes, why did the nation have to wait for over 50 years to achieve self-sufficiency in this area? There are no easy answers. But if one looks back in search of an answer, what emerges is a story of vested interests nurtured by bureaucrats and politicians in power and their strange ways of decision-making. The inauguration of the Salboni press is perhaps a good occasion to recall that story.

It was in the 1980s that the government of Indira Gandhi decided to set up two currency printing presses. These were to be set up by the government and like the other existing mints operating at that time, these two presses too were to be owned and run by the finance ministry. Bureaucrats loved this. Politicians in power enjoyed this arrangement even more.

Setting up a currency note printing press and running it (there was a flourishing currency and coins division in the finance ministry at that time) meant an empire that did not end with just signing contracts, but extended to frequent visits abroad as well. Politicians agreed to such an arrangement because they felt they could distribute their quota of political patronage if the printing presses were set up and run by the government. Neither of the classes were bothered by the thought that ideally such a printing press should be set up and run by the country's central bank, as is the practice in most developed countries.

Salboni in West Bengal and Mysore in Karnataka were identified as the sites where the presses were to be located. Pranab Mukherjee was the finance minister at that time and Janardhan Poojary was the minister of state for finance, who had by then become quite famous for his loan melas. There are no prizes for guessing why these two locations were preferred for setting up the presses. Salboni was that part of Bengal which Mr Mukherjee was then nurturing as his constituency and Mysore was close to Mr Poojary's heart, hailing as he did from Karnataka.

Mr Mukherjee and Mr Poojary were left out of the government headed by Rajiv Gandhi in 1985. But there was no change in the decision on setting up the printing presses. Nor was there any change in the location. But what did happen was quite interesting. By the time the decision on awarding the contracts became due, the controversy over payment of bribes for the purchase of Bofors guns had engulfed the nation.

Bureaucrats in North Block had second thoughts. The contract for the presses had to be awarded to a foreign company and naturally involved a huge foreign exchange outgo. The fear was that a decision on awarding the contract at that time could kick off another controversy. So the government decided to entrust the responsibility of setting up the presses to the RBI. The implicit logic was to let RBI handle the project, so that the government stayed out of the controversy. Also, it was believed that RBI would not allow either politicians or bureaucrats to interfere in its functioning and the project would get implemented without any controversy and delay.

RBI created a wholly owned subsidiary which was to set up the two printing presses. As it turned out, the total cost of the two presses after completion came to about Rs 1,650 crore, of which the foreign exchange component was as high as Rs 1,050 crore. Both the projects are now complete and no one hears of any controversy. Hopefully, the country's currency note shortage will now be a thing of the past.

But what should come as a surprise is the manner in which bure-aucrats and politicians agreed to take certain right decisions for apparently wrong reasons. Currency note printing presses should not be set up and run by the government. But politicians and bure-aucrats wanted to perpetuate their control over this area for the wrong reasons. Even the decision on locating the two presses were taken on purely political considerations.

The Bofors controversy changed their minds. They were not convinced by the logic that such printing presses should ideally be set up and run by the country's central bank. They decided to divest themselves of this responsibility only when they feared that the government deciding on the award of contracts might create more controversy at that time and land the government in a bigger problem. The decision was motivated by their desire to insulate the government against any fresh controversy.

If the country today has two new currency note printing presses, owned and run efficiently by RBI without any kickback scandal, some credit for this should go to the Bofors controversy.