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The Hindu Notes for 29th November 2018

Topic Discussed: The Hindu Notes of 29th November 2018

In a spirit of accommodation

The RBI, the RBI board and the government must understand the limits to which they can push each other

The saying, ‘all’s well that ends well’, appears to be most appropriate in the case of the recent spat between the Reserve Bank of India (RBI) and the government. However, the agreement arrived at could as well have been settled before things went public. Even though the agreement itself has raised certain fresh questions, by and large it is a satisfactory one. Without going into the merits of the issues raised, two important questions have arisen, which relate to the relationship between the RBI and the government and between the RBI management and its board. Even if one cannot come to definitive conclusions, it is important to note the ramifications of the issues raised.

Earlier episodes

Section 7 of the RBI Act, in a sense, sets out the relationship between the government and the RBI. This section gives the government the right to issue directions to the RBI in public interest. Strangely, the framers of the Act seemed to have had in mind frequent use of the section as it says: “The central government may from time to time give such directions....” Leaving that aside, it is a fact that the government had not issued such directions. But it does not mean that the government did not have its way. When Benegal Rama Rau resigned as RBI Governor in 1957 on an issue on which he differed from the government, Jawaharlal Nehru wrote to him: “You have laid stress on the autonomy of the Reserve Bank. Certainly it is autonomous, but is also subject to the Central Government’s directions... Monetary policies must necessarily depend upon the larger policies which a government pursues. It is in the ambit of those larger policies that the Reserve Bank can advise.”

The tone of the letter was harsh. Similarly, some years later when another Governor, H.V.R. Iengar, raised the issue of ad hoc Treasury Bills, Finance Minister T.T. Krishnamachari said: “What to my mind is necessary is to ensure that Government policy is formulated in this respect after very full discussion with the Reserve Bank and that the latter is kept informed from time to time of any changes that Government feel called upon to make before they are made.”

These episodes effectively set the tone and nature of the relationship between the government and the RBI. In one more instance, the RBI, in 1985, decided to allow banks the freedom to fix the interest rate on term deposits up to maturity of one year. The government was consulted before the circular was issued. Later, the government changed its mind. Of course, there was some uneasiness among public sector banks and the freedom given was not properly managed. The government wanted the RBI to withdraw the circular, which was done. Governor R.N. Malhotra and I, at the time, Deputy Governor of the RBI, agonised over the issue for several hours before writing the new circular withdrawing the earlier one. After issuing the new circular, I wrote to the Finance Ministry reiterating again why we had taken the earlier decision. Monetary policy measures were never announced without the concurrence of the Finance Minister.

The recent change in the monetary policy framework setting up the Monetary Policy Committee and giving it full freedom to determine the policy rate is a giant step forward in terms of giving the RBI autonomy. Literally, the Finance Minister gets to know the decision along with others.

A distinction

But it must be noted that the first step in this direction was taken by Manmohan Singh when he was the Finance Minister. When I approached him to do away with the system of the issue of ad hoc Treasury Bills which had the effect of monetising fiscal deficit, he readily agreed to this. It was this act of statesmanship by Dr. Singh which put the RBI on the road to autonomy. There is, however, a distinction between autonomy as a monetary authority and autonomy as a regulator.

In the first case, autonomy has to be full once the mandate is given. In the second case, autonomy is somewhat blurred because the mandate is broad and vague. However, coming to the issues that were thrown up in the current spat, these are mostly operational and it would have been unwise for government to use Section 7 to issue instructions. It would have sent out the wrong signals both at home and abroad. It is good that the government has desisted from using Section 7. Nevertheless, one must say that Section 7 hangs like the sword of Damocles. It is important to have continuous and sustained dialogue, and an atmosphere of give and take is much needed.

RBI and board

The second issue is about the relationship between the RBI management headed by the Governor and the board. The debate arose because of the contentious issues between the government and the RBI being referred to the board. The question that has been raised is whether the board as it is constituted today can discuss such issues and compel the Governor to act according to the majority view.

In order to understand the relationship between the government and board, we have to go back to Clause 2 of Section 7, which says: “The affairs and business of the Bank shall be entrusted to a Central Board of Directors which may exercise all powers and do all acts and things which may be exercised or done by the Bank.”

However, Clause 3 says: “Save as otherwise provided in regulations made by the Central Board, the Governor... shall also have powers of general superintendence and direction of the affairs and business of the Bank and may exercise all powers and do all acts and things which may be exercised or done by the Bank.”

Some argue that Clause 3 abridges the powers of the board. To me, the right way of interpretation is that both the board and the Governor have concurrent powers in almost all matters. The board has members nominated by the Central government from various walks of life, including industry. It does create a problem. This can result in a conflict of interest because the actions taken by the RBI could directly affect their interest. Therefore, the tradition that had evolved is that the board has largely functioned as an adviser.

Two things need to be clarified in this context. First, it is not as if the board has not passed resolutions on matters which are operational and policy oriented. The change in the Bank rate in the past had the prior approval of the board. In fact, in the weekly meetings of the RBI Board, the first resolution used to be on the Bank rate. But with the Governor’s concurrent powers, in the past, on occasions, the Bank rate had been changed without going to the board. Second, strictly speaking, the board has the powers to discuss and even pass resolutions, which have been done. But given the nature of the board and the interests of the members, it becomes difficult to let the board to take binding decisions.

Endnote

It is, however, true that in the case of the Federal Reserve System in the U.S., the board does take decisions with voting if necessary. But then the nature of the board is very different. Section 7 is a mix of things. First, it gives powers to the board, and second, it gives powers to the Governor as well. The way the relationship between the board and the Governor has evolved over time in India is a good one. The board by and large has played an advisory role.

Against this background, while the Governor can act on his own, he must listen to what the members feel and the sense of the board must be fully reflected in his actions. The crux of the problem is that the RBI, the board and the government must understand the limits to which they can push. A spirit of accommodation must prevail.

Without maternity benefits

The government’s maternity benefit programme must be implemented better and comply with the Food Security Act

Without maternity benefits

Yashoda Devi was five months pregnant with her third child when we met her in Jharkhand in June. She was in extreme pain. The doctor had told her that she was very weak and had advised her to improve her nutritional intake. But Ms. Devi did not have money to follow the doctor’s advice.

Not serving its purpose

Ms. Devi was one of the 98 women we interviewed in the course of a small survey in 12 villages spread across two blocks of Jharkhand: Manika in Latehar district and Khunti in Khunti district. We enquired about the financial and physical hardships experienced by the respondents during pregnancy and delivery, and also studied the implementation of the Pradhan Mantri Matru Vandana Yojana (PMMVY), a maternity benefit programme, nearly one year after it was officially launched.

Under the National Food Security Act (NFSA) of 2013, every pregnant woman is entitled to maternity benefits of ₹6,000, unless she is already receiving similar benefits as a government employee or under other laws. The PMMVY was announced by Prime Minister Narendra Modi on December 31, 2016. Unfortunately, it violates the NFSA in several ways. First, the benefits have been reduced from ₹6,000 to ₹5,000 per child. Second, they are now restricted to the first living child. Third, they are further restricted to women above the age of 18 years.

The scheme largely defeats the purpose it is supposed to serve: according to a recent analysis, it excludes more than half of all pregnancies because first-order births account for only 43% of all births in India. In our sample, less than half of the women met the PMMVY eligibility criteria. Among those who were eligible, a little over half had applied for maternity benefits.

The application process is cumbersome and exclusionary: a separate form has to be filled, signed and submitted for each of the three instalments, along with a copy of the applicant’s mother-child protection card, her Aadhaar card, her husband’s Aadhaar card, and the details of a bank account linked to her Aadhaar number. The compulsory linking of the applicant’s bank account with Aadhaar often causes problems. Further, the PMMVY provides little assistance to women who lose their baby, because the successive payments are made only if the corresponding conditionalities are met.

Many hardships

The worst form of hardship reported by pregnant women in our sample, among those related to lack of funds, was the inability to improve their nutritional intake or even to eat properly during pregnancy.

Ms. Devi, during and before her second pregnancy, was working in someone else’s field where she was paid in kind (5 kg of grain per day). This time, as she was in pain, she was unable to work for wages during her pregnancy. This reduced the family’s income, already strained by the last delivery’s debts when they had to spend more than ₹12,000 by borrowing and selling assets. Ms. Devi said that if she had received maternity benefits under the PMMVY, she could have used the money to take care of her health and eat nutritious food as advised by the doctor. Like her, 42% of respondents in the sub-sample of women who were working for wages before pregnancy with an average wage of ₹126 per day of work could not work during their pregnancy and earned zero wages. In our sample, on average, respondents spent ₹8,272 on their deliveries alone. Half of the respondents who had spent money during delivery or pregnancy said that they had to borrow money to meet the expenses. It was also common for the families of the respondents to sell assets or migrate to cover these costs. The PMMVY could help protect poor families from these financial contingencies.

The provision for maternity entitlements in the NFSA is very important for women who are not employed in the formal sector. The PMMVY, however, undermines this provision due to the dilution of the entitled amount and the exclusion criteria. Even in this restricted form, the scheme is yet to reach eligible women as the implementation record has been dismal till date. In our sample, 30 women had applied for maternity benefits, but none of them had actually received any PMMVY money. No doubt some women did receive PMMVY benefits in both districts by June (this was confirmed by the block offices), but the numbers were so small that none of them emerged in our sample. The scheme seems to be achieving very little for now, in Jharkhand at least. There is an urgent need for better implementation as well as for compliance of the scheme with the NFSA. Maternity benefits should be raised to ₹6,000 per child at least, for all pregnancies and not just the first living child.

A very material shift

Occupational identities are competing with caste and religious identities in Madhya Pradesh

The political mood of the people in Madhya Pradesh is complex. To understand voting behaviour only through the prism of caste is an outdated method in this State. In fact, occupational identities resonate across caste and religion. Employing the categories of farmers, labourers, government employees, small businessmen, the urban service classes, and so on helps us understand voter behaviour more clearly than categories such as upper caste, Other Backward Classes (OBCs), Scheduled Castes (SCs) and Scheduled Tribes (STs).

Shifting identities

In the wake of Mandalisation of politics in the early 1990s, when caste-based identity emerged as the dominant electoral fault line, Madhya Pradesh did not witness the replacement of traditional upper-caste political elites by OBCs as Uttar Pradesh and Bihar did, despite having the demographic logic for the same. This was seen in 1993 when Digvijaya Singh was elected as the Congress Chief Minister in the State rather than Subhash Yadav. Mr. Singh occupied that position for two terms until 2003.

It was this feeling of denial of due share to the OBCs that the BJP utilised to the hilt in 2003 by projecting Uma Bharti, an OBC, woman and a firebrand Hindutva leader, as its chief ministerial face against Mr. Singh. The OBCs overwhelmingly shifted to the BJP, and that trend continued until the 2013 Assembly elections. The upper castes, who perceived the BJP as a pro-Hindutva party, also made the same shift. In the same period, particularly from the mid-1990s to 2008, a significant section of Dalits in the areas adjoining U.P. shifted to the Bahujan Samaj Party, thereby signifying the dominance of caste-based identity over other markers.

However, now, after demonetisation and other factors, my two-phase field study in Madhya Pradesh in May-June and November this year suggests that occupational identities are now competing with caste and religious identities. A sense of solidarity around occupational identity has been forged by a combination of factors such as rampant lower-level corruption; destruction of the rural and agrarian economy and livelihoods allegedly on account of demonetisation; anger due to lower minimum support prices; anger due to schemes like the Bhavantar Bhugtan Yojana, which allegedly benefits the intermediary vyaparis; and the problem of digital payments that causes undue delays in money being credited into accounts. There is a consolidation of farmers belonging to upper castes, OBCs, SCs, and STs rather than around their respective caste identities. Though the same doesn’t necessarily translate into all of them making the same electoral choices, their articulation of these issues shows strong similarities.

Customised welfare measure

At a time when a large section of farmers in the rural areas and those in the lower and middle classes in urban areas share a sense of perceived marginalisation, the government’s political and policy responses reveal a subtle attempt to privilege socio-cultural identities over occupational ones. The consistent political success of the BJP’s OBC and Hindutva card (from Ms. Bharti to incumbent Chief Minister Shivraj Singh Chouhan) in the last 15 years has not lost its hold on BJP leaders. Customised welfare measures, particularly for those who fall in the Below Poverty Line (BPL) category, are seamlessly fused with caste-cum-religious markers. There are many policy announcements for farmers, a host of schemes for women, and there is rigorous implementation of the Pradhan Mantri Awas Yojana (which was originally meant to cover the economically weaker sections and low-income groups but has been extended to the middle-income group as well).

However, there are also socio-cultural measures that favour socio-political identities over occupational ones. For instance, at a time when the anger of farmers was emerging as the dominant issue, the State government in coordination with the BJP organised six Pichhda Varg Mahakumbhs (OBC confluences) in this election year. The first confluence was inaugurated by the Chief Minister himself, who labelled half the population of the State as OBCs rather than as farmers. Similarly, the popular Mukhyamantri Teerth Darshan Yojna (Chief Minister’s Pilgrim Visit Scheme), which was introduced in 2012, provides a one-time assistance to those above the age of 60 years and Below the Poverty Line who want to go to various places of pilgrimage that have been chosen by the government (Badrinath, Kedarnath, Jagannath Puri, Dwarka, Haridwar, Amarnath, Vaishno Devi, Shirdi, Tirupati, Ajmer Sharif, Kashi, Amritsar, Rameshwaram, Sammed Shikhar, Shravan Belgola and Belangi Church, Nagapattinam). Also, there is another trend of initiating social identity-based customised welfare measures wherein ₹1,000 per month is deposited in the bank accounts of the women heads of three tribes — Sahariya, Baiga and Bharia tribes — to combat malnutrition. Those who have been left out of this scheme are naturally resentful.

Based on my field study, I found that more people seem to privilege their occupational identity over their caste and religious ones. Correspondingly, they are less likely to be swayed by the cultural politics of fusing ascriptive caste identity with a religious framework. This shifting trend was captured in multiple field responses. For instance, the majority of Gujjar farmers in Bandha village of Morena district that falls in the Chambal region are angry with the BJP government as farmers. They dismiss the demand of a Gujjar-led political body, the OBC-SC-ST Ekta Manch, for 27% reservation for OBCs instead of the existing 14%, despite them constituting around 50% of the State’s population. They are unequivocal in their articulation that their suffering lies in being farmers rather than belonging to the OBCs.

The shift towards occupational identities signifies the privileging of material politics over cultural politics. However, it is different from the class politics of the 1970s, as markedly differentiated classes are consolidating under the same occupational frameworks. Also, the same process may not be true in States like U.P. and Bihar, where caste consciousness still holds the ground.

Protect indigenous people

Implementation of the various provisions to protect the tribals of the Andaman and Nicobar Islands has been poor

The debates following the recent alleged killing of an American national, John Allen Chau, by the Sentinelese have put the spotlight on the vulnerability of an indigenous community that has lived for thousands of years with little contact with outsiders. The Sentinelese have been more fortunate than the Jarawas, though. The Andaman Trunk Road, among other projects, has cut into the heart of the Jarawa reserve, which has not only disturbed their ecological environment but also changed their lifestyle and dietary habits and endangered them.

There are four ancient Negrito tribal communities in the Andaman Islands (the Great Andamanese, Onge, Jarawa and Sentinelese) and two Mongoloid tribal communities in the Nicobar Islands (the Shompen and Nicobarese). Except the Nicobarese, the populations of the other tribes have reduced drastically over the decades.

From Nehru to now

What has been India’s policy towards these tribals? Jawaharlal Nehru’s Tribal Panchsheel were the guiding principles after Independence to formulate policies for the indigenous communities of the Andaman and Nicobar Islands. Based on them, the Andaman and Nicobar Islands (Protection of Aboriginal Tribes) Regulation (ANPATR), 1956 was promulgated by the President. This Regulation protected the tribals from outside interference, specified the limits of reserved areas and said no land in a reserved area shall be allotted for agricultural purposes or sold or mortgaged to outsiders. Those violating the land rights of the tribals were to be imprisoned for one year, fined ₹1,000, or both. Despite this, there continued to be constant interactions between the tribals and settlers/ outsiders.

A policy of non-intervention was also proposed by an expert committee on the directions of the Supreme Court. The committee submitted its report in July 2003. The trigger for this was a 1999 petition that sought to bring the Jarawas into the mainstream. The committee recommended protecting the Jarawas from harmful contact with outsiders, preserving their cultural and social identity, conserving their land and advocated sensitising settlers about the Jarawas.

In 2005, nearly 50 years after it was promulgated, the ANPATR was amended. The term of imprisonment as well as the fine were increased. However, in the years in between, the Andaman Trunk Road had already ensured increased interaction with the tribals. In the case of the Jarawas, this had led to the spread of diseases, sexual exploitation, and begging. Similarly, a policy for protecting the Shompen tribes was released only in 2015. However, in spite of the 2005 amendment, videos of commercial exploitation of the Jarawas in the name of “human safaris” were widely reported in the media. Following this, the government amended the ANPATR yet again in 2012, creating a buffer zone contiguous to the Jarawa tribal reserve where commercial establishments were prohibited, and regulating tourist operators. Despite all these amendments and provisions, there continue to be numerous reports of civilian intrusion into the Jarawa tribal reserve.

International conventions

International policy has changed over the decades. While the Indigenous and Tribal Populations Convention, 1957, of theInternational Labour Organisation (ILO) insisted on an integrationist approach towards tribal communities, the 1989 convention insisted on a policy of non-intervention, “recognising the aspirations of these peoples to exercise control over their own institutions, ways of life and economic development.” India ratified the 1957 convention but has not ratified the 1989 convention. However, despite not signing it, India tried to tread the path of non-interference.

Therefore it it puzzling that in August the government relaxed the restricted area permit (RAP) for 29 islands in the Andaman and Nicobar, including North Sentinel Island. If the government has decided to ease the restrictions in a phased manner, this could adversely affect the indigenous population in the long run. Such commercialisation of tribal spaces could lead to encroachment of land, as we see in other parts of the country. Considering the significance of the indigenous tribes of the Andaman and Nicobar Islands, the government needs to reorient its priorities towards protecting them from outside influence. India needs to sign the 1989 convention of the ILO, and implement its various policies to protect the rights of the indigenous population. It should also make efforts to sensitise settlers and outsiders about them. That Chau was helped in his journey shows a lack of understanding about the Sentinelese. Only concrete efforts can prevent such an incident from happening again.

Oil swings and the economy

As India depends on imported crude oil, global trends have a big impact

What factors influence crude oil price?

Global demand for oil, decisions by major producing nations to raise/ cut supplies and the global political environment are key to oil prices.

Why are crude oil prices falling now?

Prices have swayed from above $160 per barrel in June 2008 to about $35 in January 2016. After breaching $85 a barrel in early October, they plunged 8% last Friday to reach their lowest in more than a year. They have since recovered to above the $60 level. The recent fall has been attributed to two main factors: higher supply and volatility due to uncertainty about the global economy. Fears of the consequences of a full-fledged trade war between the U.S. and China have rattled speculators. However, oil prices are estimated to regain some lost ground and stabilise above $75 next year, according to an S&P Global Platts survey of top bankers and oil traders. Key support factors for oil prices would be anticipated production cuts as well as U.S. sanctions against Iran. Also, automobile demand has risen globally, and as internal combustion engines still rule the roost, demand for oil is not expected to plummet yet.

Media reports cite the International Energy Agency pegging non-OPEC output at 2.3 million barrels per day (bpd) this year, while demand was expected to grow to 1.4 million bpd next year. OPEC is expected to cut production after a meeting on December 6 in Austria. It may push for a cut of as much as 1.4 million bpd.

What’s the Indian basket of crude?

It is the weighted average of Dubai and Oman (sour) and Brent (sweet) crude. It’s the indicator of the price of crude imports for India and the index has a bearing on price rise in the country, in general. The price of the Indian basket averaged at almost $70 for April this year, and had risen to breach $80 in October.

How does crude oil price affect the rupee?

India imports more than 80% of its crude oil requirements, and it has to pay for these imports in foreign currency, mainly dollars. If international crude prices rise, refiners in the country need to spend more in dollars. If there is volatility and uncertainty about which way prices will sway, refiners tend to buy more oil and stock up. As rupees are exchanged for the U.S. currency in this exercise, it generates a demand for the dollar, thereby weakening the rupee. On October 1 this year, the Indian basket price was $82 and the rupee rate was 72.8 to a dollar. By November 20, the Indian basket had eased to $64.8 and the rupee, almost in tandem, strengthened to 71.3.

How do fuel prices influence inflation?

Prices of goods are determined as much by their supply as by the cost of transportation. Apples from Himachal Pradesh are eaten in Kerala, for instance. Rise in fuel costs are passed on by truck fleet owners down the chain to consumers. Accelerating inflation influences the central bank to raise rates thereby making it costlier to borrow. Higher interest rates keep supply of money in check and hence control inflation.