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The Hindu Notes for 22nd November 2018

Topic Discussed: The Hindu Notes of 22nd November 2018

The RBI concedes a vital principle

Its openness to the board discussing all policy decisions may well be a paradigm shift

  • The angel was in the detail of the terse press note that the Reserve Bank of India (RBI) issued after the meeting of its board of directors on November 19. Every one of the four decisions taken, including three decisions related to regulation, was ascribed to the board. The note also mentions that the constitution of a committee to examine the economic capital framework of the RBI, which was one of the decisions taken, will be jointly determined by the RBI and the Government of India.
  • These announcements constitute a significant departure from what has appeared to be the position of the RBI thus far: policy decisions, especially those relating to regulation, are the exclusive province of RBI management. Any departure from this position amounts to an infringement of the RBI’s autonomy.
  • The government and some of the current nominee directors on the RBI board have contended that all policy decisions must be deliberated by the board. The outcomes of the November 19 meeting suggest that the RBI has conceded this vital principle. This augurs well for the relationship between the government and the RBI management hereafter. Indeed, it may well constitute a paradigm shift in the functioning of the RBI.

    • A grey area

  • The precise relationship between the RBI board and the RBI management is something of a grey area. Various experts have made the point that the RBI Act vests all powers in the board and, concurrently, it vests those very powers in the RBI Governor. Whether the board can issue directions to the RBI Governor in the event of a difference of opinion between the two is not clear; some experts reject the suggestion outright.
  • Many contend that the RBI board has played an advisory role in the past and should continue to do so. Well, corporate boards too play an advisory role for the most part even though they enjoy full powers in the running of the corporation. They tend to leave most decisions to management. However, corporate boards do step in and play a more active role where management is found wanting.
  • Surely, this applies to the RBI board as well? It can be nobody’s case that the statute has conferred powers on the RBI board that were never meant to be exercised. Let us accept that these powers should be exercised rarely. Let us grant that the RBI board must play a largely advisory role. Even so, it is legitimate to expect that all policy matters would be deliberated by the board. The RBI management may or may not accept the inputs of the board. But the board must have its say. This is elementary corporate governance. In accepting this principle, the November 19 meeting of the RBI board marks a big step forward.

    • Raiding the reserves?

  • Let us turn now to the decisions taken at the meeting. How much capital the RBI needs has been hotly contested in recent years. The government’s position is that the RBI’s reserves are in excess of reserves typically held by central banks elsewhere. Some commentators have described the government’s position as an attempt to ‘raid the reserves’ of the RBI to fund its fiscal deficit. The suggestion seems to be that the RBI has cash which the government wants to steal for its own purposes.
  • This is a crude mis-characterisation of the position. The RBI’s reserves fall into two categories: revaluation reserves (which have mostly to do with the change in the rupee value of the RBI’s holdings of gold and foreign currencies) and contingent reserves (which represent plough back of a portion of the surplus earned by the RBI every year, the remaining portion being transferred to government as dividend).
  • Contingent reserves are intended for risks related to the RBI’s balance sheet. Let us suppose that these should not be touched. Revaluation reserves are an accounting entry. The RBI can reduce some of the revaluation reserves on the liability side and extinguish an equivalent value of government securities on the asset side. The latter step would lower the stock of debt owed by the government. This would provide headroom for the government to raise debt for meeting its future expenditure (including recapitalisation of public sector banks).
  • So, yes, reducing reserves enables the government to spend — but not by stealing the RBI’s cash! It’s an idea that merits consideration. Whether reducing reserves from their current level via the accounting entries indicated above is appropriate for the RBI is for the proposed committee to judge.

    • Flow of bank credit

  • The other outcomes at the RBI board meeting have to do with increasing the flow of bank credit and easing the problems of borrowers, especially small and medium enterprises (SMEs).
  • Banks are subject to capital adequacy requirements — that is, they have to hold a minimum of capital against every rupee of loans they make. The RBI’s requirement of capital adequacy is one percentage point higher than that of the internationally accepted Basel norms laid down by the Bank for International Settlements. The government would like to align Indian banks’ requirements with the Basel norms as that would reduce the demands for capital made on it by public sector banks (PSBs).
  • The RBI did not yield on this point at the recent meeting. However, it has agreed to defer an increase in the capital requirement of banks of 0.625% under another head by one year. This does give the government some breathing space in respect of additional infusion of capital into PSBs.
  • The RBI has also agreed to consider the government’s suggestion for easing the norms for Prompt Corrective Action (PCA) for banks. The PCA imposes restrictions of various kinds on banks, including restrictions on lending for the weakest banks. The idea is that banks that are very weak should not create problems for themselves by making more loans. They should focus on getting their balance sheet right by reducing costs, selling some of their non-core assets and the like.
  • This is fine in principle. However, if many banks face lending restrictions for a prolonged period, it could create serious problems for the economy. Large corporates could get into distress because of their linkages with distressed SMEs. So can the healthier banks that are exposed to these corporates. To use the jargon, a PCA regime has significant negative externalities. A relaxation in PCA norms, by translating into higher credit flows, could relieve stress in the broader economy. This also applies to the decision, approved at the meeting, to allow restructuring of SME assets of up to ₹25 crore.
  • The strident demand to enhance flows to non-banking financial companies (NBFCs), which was heard ahead of the meeting, finds no mention in the press note. It appears that the difficulties in rolling over NBFC debt that followed the collapse of Infrastructure Leasing and Financial Services (IL&FS), a leading NBFC, have abated somewhat. Evidently, the RBI was able to make a persuasive case on this point at the meeting.
  • It is the broader message of the November 19 meeting that is reassuring. As a public institution whose actions have enormous welfare implications, the RBI management cannot rule by fiat. Its actions must flow from a consultative process. It must explain and justify its actions. It must be seen to be accountable. The RBI board could be an important mechanism for ensuring that these conditions are met.

    • Retweeting brahminical patriarchy

    It is either mischievous or ignorant to claim that ‘brahminical’ only refers to brahmins

  • Imagine a celebrity Indian CEO going to the United States and having himself photographed with women of colour while holding a poster that said, “Smash racist patriarchy”. And then, imagine white Americans coming down on him like a tonne of bricks, accusing him of inciting hatred and violence against white Americans. Sounds absurd? Good. Now imagine him actually apologising to the American public for wanting to end racist patriarchy. Sounds even more absurd? Well, this, or at least a version of this, has actually happened. Not in the la-la land of Donald Trump, but right here, in the world’s largest democracy.

    • The act and reaction

  • Recently, the Twitter CEO, Jack Dorsey, on a visit to India, had an informal discussion with a group of Indian women journalists, activists and writers about their experience on Twitter. In the course of the meeting, he was gifted a poster by one of the participants. It said, ‘Smash Brahminical Patriarchy’. When a group photograph of Mr. Dorsey posing with that poster surfaced on Twitter, it became an immediate target of outraged trolling. Both Mr. Dorsey and the organisation he heads were angrily accused of inciting hatred and violence against a “minority”, namely, brahmins.
  • The furious tweets spanned the whole gamut of indignation from A to B. Mr. Dorsey was accused of being a “brahmin-hating, racist bigot”. He was accused of propagating hatred towards “people who constitute 5% or less” of India’s population. Many compared the sentiment expressed in the poster to antisemitism, asking if he would dare pose in the U.S. with a placard advocating hatred of Jews. A serving civil servant even deemed it “a fit case for registration of a criminal case for attempt to destabilize (sic) the nation”. Mr. Dorsey’s apoplectic critics wanted an immediate apology. And they got it, too.
  • While Twitter clarified that the content of the poster was “not a statement from Twitter or our CEO”, the company’s legal and policy head put out a tweet saying, “I’m very sorry for this. It’s not relective (sic) of our views. We took a private photo with a gift just given to us — we should have been more thoughtful. Twitter strives to be an impartial platform for all. We failed to do that here & we must do better to serve our customers in India.” This public apology was tweeted out in its wordy entirety not once, not twice, not three times, but eight times. The whole episode raises two simple questions: What was wrong with that poster? And what is wrong with Twitter?

    • Social order of caste

  • The first is disposed of easily enough: nothing. Someone patient enough to carefully poke through the mass of outrage piled up against Mr. Dorsey and his poster might discern the vague outlines of an argument, which essentially boils down to brahminical patriarchy coming to the defence of brahminical patriarchy.
  • First of all, it is a truth universally acknowledged (except in the parallel universe inhabited by certain species of trolls) that ‘Brahminism’ refers not to members of the brahmin community but to the oppressive social order of caste. This social order, as has been well established by feminist historians such as Uma Chakravarti, is premised on two hierarchies that are inter-connected: gender hierarchy and caste hierarchy. The former accords women an inferior social status vis-à-vis men, while the latter accords brahmins a superior social status vis-à-vis all other varnas, or caste groups. Also, it is through male control of female sexuality that what Ms. Chakravarti calls “caste purity, the institution unique to Hindu society”, is preserved and reproduced over time. Hence, in the Indian context, it makes little sense to issue a call to arms against patriarchy without also referencing the brahminical roots of this patriarchy, which is precisely what that poster did.
  • As for the usage of the term ‘brahminical’, it is either mischievous or ignorant to claim that it only refers to brahmins, and therefore, the poster constituted hate speech. The father of the Indian Constitution and icon of anti-caste politics, B.R. Ambedkar, defined the term thus: “By Brahmanism I do not mean the power, privileges and interests of the Brahmans as a community. By Brahmanism I mean the negation of the spirit of Liberty, Equality and Fraternity. In that sense it is rampant in all classes and is not confined to the Brahmans alone, though they have been the originators of it.”
  • The term (spelled as ‘brahmanism’ or ‘brahminism’), then, has been in currency for a long time as a descriptor of a social order marked by the graded inequality of caste. Therefore, this sudden eruption against it makes no sense except as a reactionary backlash against the steady mainstreaming of anti-caste politics on social media. Given that caste remains a powerful determinant of status and life chances in Indian society, such a backlash is perhaps not entirely surprising.
  • But what is, is the alacrity with which a powerful multinational firm, with pretensions to liberal values, chose to pander to feudal sentiment. It makes one wonder what, if anything, Mr. Dorsey and his organisation learned from their closed door interaction with Indian women journalists about their experiences on Twitter. Whatever it was, the need to support Indian women against caste oppression and patriarchy wasn’t a part of it.

    • Getting justice for Asia Bibi

    How Pakistan must win the battle of narratives to counter Islamist sectarians

  • Last month, the Pakistan Supreme Court acquitted Asia Bibi, a Christian woman accused of blasphemy, citing lack of evidence. The verdict must rank as the boldest in the chequered history of Pakistan. The judges showed remarkable courage in going against the far-right ideology responsible for the extralegal lynching of an estimated 60 persons accused of blasphemy since 1990.
  • Indeed, in 1997, a judge of the Lahore High Court, Arif Iqbal Bhatti, who had dismissed a blasphemy case against two Christians, was killed. So were Salman Taseer, the outspoken Governor of Punjab, and Shahbaz Bhatti, Pakistan’s Federal Minister for Minority Affairs, in January and March of 2011, respectively. Both of them were critical of the blasphemy laws and had defended Ms. Bibi.

    • Surrender of the Pakistani state

  • True to form, the Pakistani clerics’ reaction to Ms. Bibi’s acquittal was brutal. Thousands of their weapon-wielding henchmen blocked roads and burnt vehicles shouting “Hang Asia” slogans. Pir Muhammad Afzal Qadri, senior leader of the radical outfit Tehreek-e-Labbaik Pakistan (TLP), not only incited an insurrection against Pakistan Army Chief General Qamar Javed Bajwa, but also openly called for the assassination of the Supreme Court judges who discharged Ms. Bibi. If that was not horrific enough, he hurled an antisemitic slur at Prime Minister Imran Khan and sought the dismissal of his government. All this in the name of the Prophet whom the Quran calls Rahmat al lil aalameen (Mercy unto humanity)!
  • Such was the savageness of the clerical backlash that the government capitulated within two days of the verdict. This resulted in Pakistan’s Religious Affairs Minister and the Law Minister of Punjab signing an agreement with the TLP. One of the two TLP signatories was Mr. Qadri.
  • Under the deal, the government agreed to take immediate steps to prevent Ms. Bibi from leaving the country and promised not to contest the review petition filed against the verdict. Also, the arrested protesters would be released without delay and violence against them investigated. The only concession that could be extracted from the TLP was a deceitful ma’azarat (apology) to those who feel its activities had hurt them. The surrender of the Pakistani state could not have been more abject.
  • One fails to understand why Pakistan is constrained to pander to every whim of the extremists, especially when they do not enjoy popular support. The TLP, which has been consistently holding the state to ransom, did not win a single seat this year in the National Assembly despite fielding more than 170 candidates. The only inference that could be drawn from this is that an overwhelming majority of the Pakistani electorate does not subscribe to the medievalism of religious parties. Yet, the radicals can be seen dictating terms to even the powerful Pakistani military.
  • Some commentators attribute this to the belief that Pakistani citizens are not moderate. The argument is, if the extremists are not winning seats, it is because the mainstream parties have appropriated the discourse of the religious right on issues like blasphemy and women’s rights. This reasoning is too simplistic. If, as alleged, the people of Pakistan had really been comfortable with radicalism, they would have backed authentic religious groups which hope to desecularise Pakistan. They would not have voted to power a mainstream party which only opportunistically resorts to the language of political Islam.

    • A conundrum explained

  • What explains this conundrum? The answer could lie in the Constitution which declared Pakistan to be an “Islamic Republic” perhaps without fully ascertaining if that was really “the will of the people of Pakistan” as the Preamble claims. The fact is, even Mohammad Ali Jinnah did not envision the state he was creating as a theodemocracy although he wanted Pakistan’s Constitution to embody the “essential principles of Islam” such as equality, justice and fair play, which is totally different from making Islam the state religion.
  • In Creating a New Medina, Venkat Dhulipala points out that Jinnah considered Muslims in the “majority provinces” a nation only because they constituted a numerical majority in a contiguous piece of territory. On the other hand, he refused to accord the status of a “national group” to Muslims in the United Provinces because they were “scattered”. In other words, there is no evidence to claim that Jinnah’s definition of a nation was based on religion.
  • Yet, soon after his death, the Objectives Resolution (adopted in March 1949 and now part of the Pakistan Constitution) proclaimed inter alia that “sovereignty over the entire universe belongs to Allah Almighty alone and the authority which He has delegated to the State of Pakistan, through its people for being exercised within the limits prescribed by Him is a sacred trust.” Several provisions of the Constitution echo these views. Article 31, for instance, expects the state to take steps to enable Pakistani Muslims to live in accordance with the basic concepts of Islam and help them understand “the meaning of life according to the Holy Quran and Sunnah.” From a Muslim point of view these assertions are justified. But the question is, on whose interpretation of the Quran and the Sunnah would “the limits” prescribed by Allah be determined and enforced? Who has authorised Pakistani theologians to hang a person for a crime she has not committed, especially when that crime does not carry the death penalty in Islam?
  • With fatwas of kufr (apostasy) and threats of assassination hanging over them like a sword of Damocles, the people and secular politicians of Pakistan cannot be expected to boldly speak out against the views of the rampaging clerics. Even the Supreme Court judges who acquitted Ms. Bibi thoughtfully began their ruling with the Kalima-e-shahaadat (the testimony of faith). But it was of no avail. The fatwa of apostasy was nevertheless issued against them.
  • The only way to reclaim Islam from the radicals is to dismantle their blinkered narrative by questioning the juristic devices of abrogation, sectarian consensus, exegetic rationales, and eisegesis. Through these instruments, Quranic verses and Prophetic hadeeses are either arrogantly repealed, semantically stifled, or gratuitously expanded to rationalise narrow sectarianism in the name of preserving the Shariah.
  • Simultaneously, a massive intellectual effort must be mounted to mainstream a concept of Quranic hermeneutics that is consistent with the core values of Islam: justice, fairness, equality, freedom of religion, moderation, kindness and mercy. The subjugation of the medievalists is almost entirely dependent on winning this battle of narratives.

    • The post and the person

    Safeguards are needed to ensure that institutions like the Election Commission are headed by capable people

  • The Constitution Bench of the Supreme Court is examining a public interest litigation (PIL) that could be critical for Indian democracy. The PIL, which seeks the strengthening of the Election Commission of India (ECI), includes a proposal to create an independent mechanism to appoint the Chief Election Commissioner (CEC) and Election Commissioners (ECs) who are, at present, simply appointed by the government of the day, without any defined criteria or processes.

    • Three critical decisions

  • That electoral democracy became a reality in India owes a great deal to the foresight of the Constituent Assembly. However, the Assembly could not have anticipated the extent to which the very political class that framed the Constitution would later attempt to subvert it. As this political dynamic unfolded, at certain crucial junctures, the judiciary and the leadership of the ECI saved democracy.
  • When the Constituent Assembly debated how free and fair elections should be ensured, three important questions arose. The first was whether free and fair elections should be made a part of fundamental rights or an independent institution, outside the executive, should be established to conduct the elections. The Assembly opted for the latter and created the ECI. With legal back up and the resources to develop and enforce a transparent electoral system, the ECI made free and fair elections a reality.
  • The second critical decision was to have a single, centralised body for elections to the Lok Sabha and State legislatures. One proposal was that the ECI be confined to federal elections, and separate institutions be set up to conduct elections to State legislatures. However, with increasing tension among communities, the Assembly feared partisan action in the States and opted for a single national institution, the ECI. The implications of this decision were complex. On the one hand, Central institutions have generally been more robust than State institutions. For example, State Election Commissions lack autonomy, are short on manpower and funds, and are frequently subject to attempts by State governments to manipulate elections. On the other, this decision could have led to an autocratic institution being established and possibly manipulated by powerful national actors. But this possibility was contained because elections became subject to judicial review. Originally, the Constitution had provided for tribunals set up by the ECI to hear election petitions. But aggrieved parties approached the courts, and the courts decided to hear election petitions. Then the ECI itself recommended that election petitions be heard by the judiciary, and in 1966, the law was changed accordingly.
  • The third question concerned ensuring the independence of the ECI. As the manner of appointment of the CEC and ECs was debated, Shibban Lal Saxena presciently argued that while the then Prime Minister was a man of independence, this may not always be the case, and proposed ratification of the CEC’s appointment by the legislature. But the Assembly disagreed, and provided simply for the CEC to be appointed by the President, leaving it to the legislature to enact a suitable law, which never happened. The Constituent Assembly did provide, though, that the CEC could only be removed through impeachment. For the ECs, even this safeguard was not provided, which is also a subject of the above-mentioned PIL.

    • A major shortcoming

  • The history of elections shows that this remains a major shortcoming of the ECI. From 1967 to 1991, the election process deteriorated as the Congress lost its dominance, political competition intensified, and political actors stepped up violence and electoral malpractices. The ECI could not arrest this deterioration. Several State governments made large-scale transfers on the eve of elections and posted pliable officials in key positions, who sometimes flouted the ECI’s orders. This deterioration could have continued. Instead, during the 1996 general election, the ECI restored the credibility of the election process. The CEC, T.N. Seshan, reinterpreted the ECI’s role and powers, and provided combative, forceful leadership. He publicly reprimanded politicians for violating the Model Code of Conduct, postponed/ cancelled elections if their credibility was compromised, intensified supervision of elections, and insisted on action against errant officials. Because of constitutional safeguards, he could not be removed. But the ECI got the right leadership accidentally, not by design. Though the ECI has since become an institution of some authority, there have been controversies over appointments of ECs, allegations of partisanship, and new problems such as of voter bribery and paid news, which the ECI has not been able to address so far.
  • As history shows, inadequate leadership is the bane of our public institutions. Safeguards to ensure that ethical and capable people head them are crucial.

    • Limits of CBI jurisdiction

    A provision that allows States to show their strength

  • Can States bar the Central Bureau of Investigation (CBI) from functioning in their territory?
  • Yes. The CBI is a national agency with police powers. Its primary jurisdiction is confined to Delhi and Union Territories. As policing (detecting crime and maintaining law and order) is a State subject, the law allows the agency to function outside only with the consent of the States. Andhra Pradesh and West Bengal have withdrawn their general consent to the CBI to operate within their territories.
  • Has it happened before? And why?
  • There are several instances of State governments withdrawing their consent. There was even an instance in Sikkim, when the State withdrew its consent after the CBI registered a case against former Chief Minister Nar Bahadur Bhandari, and before it could file a charge sheet. The most common reason for withdrawal of consent is a strain in Centre-State relations, and the oft-repeated allegation that the agency is being misused against Opposition parties. The decision by Andhra Pradesh and West Bengal has come amid concerns being voiced by Opposition parties that Central agencies such as the CBI, Enforcement Directorate and Income Tax Department are being used against them.
  • Under what law is it done?
  • The CBI draws its power from the Delhi Special Police Establishment (DSPE) Act. The Home Ministry, through a resolution, set up the agency in April 1963. Under Section 5 of the Act, the Central government can extend its powers and jurisdiction to the States, for investigation of specified offences. However, this power is restricted by Section 6, which says its powers and jurisdiction cannot be extended to any State without the consent of the government of that State.
  • What is the impact of States taking back their consent?
  • The withdrawal of general consent restricts the CBI from instituting new cases in the State concerned. However, as decided by the Supreme Court in Kazi Lhendup Dorji (1994), the withdrawal of consent applies prospectively and therefore, existing cases will be allowed to reach their logical conclusion. The CBI can also seek or get specific consent in individual cases from the State government.
  • How has the consent issue played out?
  • In most cases, States have given consent for a CBI probe against only Central government employees. The agency can also investigate a Member of Parliament. Apart from Mizoram, West Bengal and Andhra Pradesh, the agency has consent in one form or the other for carrying out investigations across the country.
  • What happens to cases in which there is a demand for a CBI probe?
  • The Supreme Court has made it clear that when it or a High Court directs that a particular investigation be handed over to the CBI, there is no need for any consent under the DSPE Act. A landmark judgment in this regard was the 2010 Supreme Court decision by which the killing of 11 Trinamool Congress workers in West Bengal in 2001 was handed over to the CBI.