Politics Now

Thoughts on the RBI’s Independence

The country’s apex bank, the Reserve Bank of India, is back in the news again, and with concerns that have been aired earlier as well: on the autonomy and independence of the central bank. However, what makes it different this time around is the severity of the friction that currently dominates the atmosphere between the RBI and the government. In a recent lecture, the deputy governor of the RBI, Viral Acharya lashed out at the government for encroaching on the independence of the RBI and warned of disastrous repercussions if the role of the RBI was allowed to be undermined on purpose.

The disparaging remark triggered an avalanche of questions from commentators of diverse backgrounds. How much of autonomy should be granted to the Reserve Bank? Can the apex bank have a free run? More importantly, how much should the government ideally intervene in the day-to-day functioning of the RBI? The Reserve Bank as we know it today, was first institutionalised by the RBI Act (1934) under the British Raj. Originally, the role of the RBI was “to regulate the issue of Bank notes and the keeping of reserves with a view to securing monetary stability in India and generally to operate the currency any credit system of the country to its advantage.” In a world today which is highly interlinked and of which India aims to be an integral player, sour relations between the prime banking institution and the government can prove to be a major hurdle to a growing economy.

Exploring the RBI’s Claims

In this power tussle, both parties involved demand a fair share of their rights. The RBI has put up certain preconditions that it believes are essential for the healthy run of the Indian economy.

  • For one, it wants to exercise greater control over the Public Sector Banks. A volley of accusations were fired at the RBI after the humongous 13,000 crore fraud at Punjab National Bank. Urjit Patel, the present governor of the RBI, promptly responded by making it crystal clear that the RBI had far lesser control over the Public Sector Banks than it enjoyed over the private lending institutions. A quick fact-finding session revealed that RBI’s legal powers to supervise and regulate PSBs are very limited. It does not hold the authority to remove the PSB directors or the management, who are appointed by the government of India, and neither can it force a merger or trigger the liquidation of an ailing public bank. Its position in regard to any public bank is limited to that of a mere watchdog. Thus, in effect, the governor rightly rolled the ball back into the hands of the government by calling for effective legal reform that would grant the RBI supervisory powers over the Public Sector Banks, permitting it to do the needful at the right moment of time.
  • Certain opinions resonate that the Public Sector Banks could be recapitalized entirely if only the RBI paid a larger dividend to the government. The Reserve Bank feels that the Government should not mandate the quantum of dividends to be paid to it. The RBI generates surplus profits in a number of ways. It does so by issuing deposits to commercial banks, which are its liabilities, and on which it pays no interest whatsoever. It also buys financial assets from the market, typically domestic and foreign governmental bonds, which pay handsome interests. So, a large part of the income is generated simply because the RBI has not the need to pay the interest on its liabilities. This surplus profit is more than all of the public sector banks put together. This belongs entirely to the citizens. Thus, after setting aside what is needed to be retained to retain the creditworthiness of the RBI, the Board pays out the remaining surplus to the government. In 2016, the amount was 65,876 crores, in 2017 it lowered to 30,659 crores, and in the current financial year it was pegged at 50,000 crores.On delving into former governor Rajan’s thoughts on the question of payable dividends, he is of the opinion that a special dividend would not help the government with its budgetary constraints. In reality, much of the surplus that the RBI generates comes from interest on government assets, or monetary gains it makes off other market participants. When this money is paid back to the government, the RBI in essence puts it back into the system- thus entailing no additional reserve creation.
  • Third, the RBI is unsatisfied with recent government proposals to set up an independent payments regulator outside the purview of the RBI. An inter-ministerial panel established to finalise the Payment and Settlement Systems Act, 2007, had recommended that the payments regulator should be an independent regulator with the chairperson appointed by the government in consultation with the RBI. In a dissent note submitted by the RBI, the RBI noted that there was no need for such an independent regulator. It cited the report by the Ratan Watal committee on digital payments, which recommended setting up of the Payments Regulatory Board (PRB) within the overall structure of the RBI.

Why is the Government miffed?

The government, however, has other reasons to wage a high-pitched war against the RBI. It seems to have developed a prima-facie dislike for the RBI, which is understandable: the RBI has railed against most of the government plans which disregarded economic sense. It complained that the RBI had kept it in the dark as far as the reforms in the approach to NPA handling was concerned. The Centre views the Prompt Corrective Action (PCA) framework by the RBI, which restricts weak banks from lending, as a key factor behind the ongoing liquidity crisis. The Reserve Bank’s circular on February 12, 2018 highlighted the importance of assets recognition as a step to mop up public banks from the bad loan mess. It scrapped all previously existing mechanisms and declared that even if the default was for a day, the defaulter must be dragged to an insolvency court and the asset must be declared as an NPA- thus ending the practice of forbearance. All these measures were taken in the public interest and in the hope for long-run gains. While the government is looking at growth, the RBI aims for stability. As was already discussed, the government also wanted the RBI to pay it higher dividends to gap its fiscal deficit, but RBI had expectedly negated the request. The government was also considerably miffed when the Reserve Bank declined the request to relax norms for lending to micro and small enterprises. This was subsequently a topic of discussion when Rajan in a note to the Parliamentary Estimates Committee pointed out that schemes like MUDRA and Kisan Credit Cards, despite being popular, could serve as potential sources of credit risks.

A supreme example of the consequence of subverting the RBI’s advice was the demonetisation debacle. On November 8th, 2016, the government announced out of the blue the scrapping of high-value currency notes in use; effectively wiping out currency worth 15.41 lakh crore from circulation. The government ignored several appeals from the-then governor of the RBI, Raghuram Rajan, to not tread on this experimental path for an economy so large in scale. This gave rise to a massive cash crunch which subsequently knocked out many small to medium scale industries which were primarily dependent on cash as a form of business. More so, this was a slap in the face for the government, too- which had claimed that the demonetisation exercise was carried out with an intent to dissolve the black money in existence, worth around 3 lakh crores. The RBI, after undertaking the tedious process to oversee the counting of uncountable number of returned notes, reported that 99.3% of the demonetised notes had found its way into the bank’s vaults, despite stringent restrictions in play. Furthermore, the government’s back-up claim of demonetisation having boosted the digital economy could not be verified in the absence of any reliable sources of data. While the benefits of demonetisation may require some pondering, its adverse impacts are clear: it hurt the economy growth rate by a staggering 1.5%.

The Way Forward

Unlike armchair politicians and commentators, the RBI cannot afford the luxury of economic inconsistency. It is often the scapegoat for under-performance, and is blamed rather unjustly for every other economic fluctuation that arises. In this environment, where the central bank has to occasionally stand firm against the highest echelons of central and state governments, its decisions to not waver from the targets of economic stability and prudence must be commended. At the same time, while the ability of the RBI to say ‘no’ in the face of adversities must be protected, it also cannot be free of all constraints and should work under a framework set by the government. In this context, certain suggestions come to my mind.

First, the responsibilities of the RBI must be clearly defined. When the responsibilities of the RBI are fuzzy, its actions can be subject to continuous questioning. Instead, if the competent authorities outline a framework within which the RBI can operate, it can steer its course consistent with those responsibilities and can be held accountable for outcomes in those fields. Inflation targets set by the government serve as a good example. Second, the freedom of the RBI to take key operational decisions from time to time is important. The RBI is tasked with the job of maintaining macroeconomic stability, and this requires the RBI to often turn down attractive proposals for the short run. With passing days, government entities are increasingly seeking oversight over various sectors of the RBI’s work. Such oversight by non-technical personnel only leads to delay in the decision making process and is not desirable. Third, and perhaps the most important of them all, the RBI must continue to fill its vacancies through clearances approved by the RBI Board and not put in place government officials who may have very little knowledge of the technicalities involved. Formulation of the Monetary Policy of India is a brilliant example of the benefits that accrue if an independent entity is allowed to deliberate on the most crucial economic policy in India.  RBI, through an effective monetary policy has been able to meet the indicator targets that it had set for itself- and it is running the show by itself, through independent analysis.

Democracies thrive on the independence of regulators, but today India finds itself ruing its absence. This contrariety is at the heart of the fault line between the two parallel institutions. Truly, institutional independence lies at the heart of any liberal democracy. If we cannot protect the RBI’s independence, and other institutions of similar importance that hold the national rudders, we cannot sustain national growth for long. One can only hope for sense to prevail, and an end to the the rather unsavoury tensions that exist at present.

Of Dissent and Dissenters

Representational image of the Supreme Court.

Dissent, in any form, is a wonderful way to practise democracy. A differing view in popular context is often assumed to be fallacious, and this has been the case over centuries. However, dissent has perhaps never assumed a more important role than now; it is the backbone of any democratic revolution. Dissent in the legal structure over specific judgements are particularly noteworthy, for it is them that keeps open the scope for future review and undoing of any potential injustice that might have been served earlier. India is one such fantastic example, as the apex court here plays a crucial part determining the validity of a wide variety of questions and issues. The success of a pluralist nation lies in its ability to celebrate difference- and thus the top court being truly reflective of India’s gigantic diversity, would naturally foster difference of opinion in most cases of judicial importance.

In the last week of September, which incidentally coincided with the remnant days of former Chief Justice Dipak Misra’s tenure, the Supreme Court was noticeably pro-active, delivering a voluminous amount of judgement over matters of national momentousness. We will restrict ourselves to three such monumental verdicts, each of which has a strikingly common feature- that of a dissenting judge. What is heartwarming in such majority verdicts is that instead of railing on the practice of majoritarianism stifling minority viewpoints, the Supreme Court has shown that divergent views can, and should be, appreciated. Such dissent often helps better, and in the process enrich, public discourse.

Examining the Cases

The verdict on the constitutional validity of Aadhaar would be a fine specimen of legal difference of opinion in the top court. Aadhaar, which was the brainchild of the erstwhile UPA regime, and crafted under Nandan Nilekani, was pushed forward as an Unique Identification Scheme for the teeming population of India. In subsequent years, what was touted as an identification scheme to expedite the delivery of welfare services to the needy soon became an all-pervasive tool that effectively armed the government with the sensitive biometric data of all Indians. The present NDA government had made Aadhaar mandatory in every possible sector, from banking to subsidy collections, from entrance registrations to issuance of certificates, the list went beyond the obscure. The concern was not only about the security of the biometric data in the hands of the government- but manifested itself into a case of breach of personal privacy by the State, which by all means is a serious accusation. Thus, the Supreme Court had to determine the Constitutional validity of the scheme.

On September 26, the Supreme Court upheld the validity of Aadhaar, but it came with considerable riders- which included the court declaring the provision of mandatorily linking Aadhaar with organisations (whether public or private) as unconstitutional, and thus void. This view was held by CJI Misra, who presided over the case, and three other judges of the Bench. However, it was Justice DY Chandrachud who strongly differed from the view held by the rest. He was of the belief that the Aadhaar project suffered from “constitutional infirmities and violations of fundamental rights”, that “constitutional guarantees could not be subject to vicissitudes of technology”, and noted that the Aadhaar Act was unquestionably unconstitutional as it failed to meet the basic criteria to have been certified as a Money Bill. In what could be regarded as a brilliant reflection, he observed that the “dignity and rights of individuals cannot be made to depend on algorithms or probabilities”. Chandrachud, thus, has through his dissent and obiter dicta kept alive a scope for an increased focus on the issue of State Surveillance in India- which the majority verdict does not explicitly mention.

The following day, on the 27th of September, the Supreme Court decided in a 2:1 judgement against referring to a larger bench a plea to review its 1994 ruling on the Ayodhya dispute, in which it had ruled that the mosque was not essential to the practice of Islam, and that namaz could be offered anywhere by the Muslims, even in the open. While Justice Misra and Justice Bhusan rejected the plea for a review by a larger Bench, the third judge, Justice S. Abdul Nazeer, gave a contrary judgement. He opined that it was not possible for the Court to rule on such a subject matter unless there was a “detailed examination of the beliefs, tenets and practices” of the faith in question. He raised the crucial question whether Article 25, which dealt with the right to free practise of religion, only protected the beliefs and practices of particular significance from a faith or all practices that were deemed essential by the concerned faith. To further acknowledge his stand, he cited that the Supreme Court had referred to a larger bench a range of similar issues- such as the permission to hold the Ram Leela and Puja in public parks, or the issue of polygamy which was inherent to Islam.

Furthermore, on September 28, the Apex Court declared what could possibly be one of the most controversial verdicts till date- permitting women in their menstrual phase to enter the Sabarimala temple. The petitioners claimed that Lord Ayappa was a celibate and hence menstruating women could not be granted access inside the temple premises. However, the judges believed that constitutional equality was of paramount importance and that the practice of barring women between the ages of ten to fifty was nothing but a form of untouchability, which is not Constitutionally permissible. In this case too, it was a 4:1 verdict. Ironically, the lone dissenting judge was a woman- Justice Indu Malhotra- but she had solid reasoning behind her dissent. While Justices Misra, Nariman, Chandrachud and Khanwilkar refused to buy into the argument that the ban on menstruating women was an essential part of the faith, Justice Malhotra argued that what constituted an essential religious belief must be left on the religious community to decide. She emphatically noted that ideas and notions of rationality should not be invoked into matters of religion by the courts, as religion cannot be substantiated by rational defence alone. As history records, more often than not, the Supreme Court has been reluctant to take decision as far as religious matters are concerned. She concluded that unless a religious practice was “pernicious, oppressive, or a social evil, like Sati”, there would be no need for the Court to intervene.

The Way Forward

In all the above cases, the dissenting ideas presented were also equally pivotal for further deliberation. The Aadhar case raised the question of validity of the law itself (which was unduly passed as a Money Bill), the Ayodhya verdict intitated a new debate on the meaning of Article 25 as provided for by the Constitution, and the Sabarimala verdict opened a scope for people to question whether the Supreme Court should exercise self-restrain in verdicts requiring rationalisation of religion. Unless such contradictory opinions are thrust forward in the Court of Law, the vibrancy of a democracy loses its charm. The trend of appreciating dissent in the Supreme Court is indeed commendable. If it were looked down upon, today India might not have transgressed into a nation with such kind of enviable constitutional melange. More importantly, dissent goes on to show that the judiciary is not a singular entity working as one- a jury has minds of unquestionable legal acumen each working independently on a case. Thus, it would reduce the chance for any kind of inadvertent bias or possible error to creep into the judgement. In fact, even the top court has regarded dissent as the “safety valve” of democracy- perhaps only a subtle recognition of the indispensable nature that dissent plays.

As long as we have differing ideas, we have dissent, and as long as we can constructively debate on ideas while also taking into consideration the dissenting propositions, we evolve as a nation.



A Step Towards Equality: On the Decriminalization of Section 377 IPC

The rights of the LGBTQ+ group is an issue of contention in most parts of the world today. India, being a socially sensitive and a culturally diverse land consisting of different creed of people, has not been that open as far as recognising the LGBT rights are concerned. An archaic law from the colonial times was scrapped only recently, when in Navjot Singh V/S Union of India the Apex Court decided that Section 377 held no constitutional validity and consequentially decriminalised consensual homosexuality, triggering almost immediate Pride Marches across the nation and setting off a mood that the judicial neglect in Suresh Kumar Koushal v/s NAZ Foundation had been corrected at last. In this regard, a detailed study on the facts and obiter dicta for both the cases Koushal v/s NAZ, 2013 and Navjot Singh Johar v/s Union of India 2018 would prove insightful without doubt.

Need for Justice: Why the re-decriminalisation?

The basis for the 2013 judgement by the Supreme Court, which drew much flak from all quarters, was the Delhi High Court’s order in 2009 pertaining to the decriminalisation of homosexuality. In Naz Foundation v/s Govt of NCT, Delhi, the Delhi High Court had taken the view that Article 15 of the Constitution prohibits discrimination on several enumerated grounds including sex. Discrimination, as per the High Court’s observations, were grounded in stereotypical judgements and generalisation about the conduct of either sex. The Delhi High Court judgement was challenged in the Suresh Koushal case, wherein the top court opined that acts which fell within the ambit of Section 377 IPC could only be determined with reference to the act itself and to circumstances in which it is executed. The Court believed that Section 377 IPC would apply irrespective of age and consent, for section 377 does not criminalize a particular set of people with a definite orientation, but only identifies certain acts which when committed naturally results in an offense under the law. The Court further observed that those who indulge in carnal intercourse in ordinary course and those who indulge in carnal intercourse against the order of nature constituted different classes of people, and that people in the latter category cannot claim that Section 377 suffered from the follies of arbitrariness. In what could be considered the final nail on the coffin moment for the LGBT movement in 2013, while reading down the 377 IPC, the Court mooted that it could not be overlooked that only a miniscule fraction of the country’s populace constituted the LGBT and the fact that in the last 150 years, less than 200 people had been prosecuted- hence rallying against the minority itself, the safeguard of whose rights formed the pillars of a democracy. While passing the order, it remarked that in its (Delhi High Court’s) anxiety to protect “so-called” rights of LGBT persons and to declare that Section 377 violates the right to privacy, autonomy and dignity, the High Court had extensively relied upon judgements of other jurisdictions- which as expected did not cut much ice with legal luminaries and the champions of the LGBT rights.

The 2018 verdict pronounced by the Supreme Court in the Navjot Singh Johar v/s Union of India is a much welcome relief. There were quite a number of interesting observations made by the Bench during deliberation and debate over the case. The Court noted that in the Suresh Koushal case, it had earlier erroneously upheld the constitutional validity of Section 377, stating that the LGBT population constituted only a miniscule fraction of the total population and that the fact that the Section was prone to being misused was not a ground to scrap it. The Bench felt that this was constitutionally impermissible, as the rights of even one individual is sacred and it was the duty of the Court to protect it. It also clearly brought out the fact that the Constitution was a “living, organic document” that was capable of evolving with the newfangled demands of the society. The role of the Courts, according to the bench, grows more important when the rights of a special class or minority group has been violated since the dawn of time. Therefore, it felt that it was their duty to robe the judiciary with the “armoury of progressive and pragmatic interpretation” to combat the evils of the society. Furthermore, it emphasized that transformative constitutionalism not only included within its purview the rights and the dignity of the people, but also to develop a supportive atmosphere wherein every person is bestowed with the opportunity to grow socially, economically and politically. Persons belonging to the LGBT segment of the society were denied such opportunities and oppressed at all possible junctions, resulting in a scenario of distasteful discrimination that struck at the very heart of a democratic society. Subsequently, it remarked that constitutional morality overrules social morality; and that nothing but constitutional morality can be allowed to permeate in the Rule of Law. The KS Puttaswamy v/s Union of India case elevated privacy to the stand of a fundamental right. The reasoning in Koushal case, wherein homosexuality was criminalised again as because the LGBT population was a minority, was found out of tune with constitutional mandates. The Court opined that the said reasoning was fallacious, as the makers of the Constitution could have never implied that the fundamental rights would only be extended to the majority, and not the minority.

The Way Forward

The takeaway is clear: The Supreme Court has now once again reaffirmed the fact that a citizen’s rights are inalienable, whosoever it be. To term the decision historic would be in more ways than one, an understatement. By one single masterstroke, the verdict restores the equality before the law of all sexual orientations and identities, which cover a diverse set of traits and people. More importantly, the decision brings to the forefront the apex court’s willingness to make the Constitution truly transformative- adapting and evolving with the ever shifting dunes of time. While India does have one of the largest constitutions of the world, legal perfection would arise only when the Constitution becomes flexible enough to leave behind social prejudices and civic ills of the past. Gender equality in India has always attracted the attention of the nation as a whole- and there, at last, seems to be hope that the most humiliated, damned and condemned would rise again to the pedestals of social success and acceptance.

In retrospect, the decriminalisation of section 377 IPC is indeed an appreciable verdict and a positive step. Now that the impetus has been provided, it is time that the subtler details are looked on carefully: the need to promote inclusivity in society. Those who have been ostracized and deprived of their legal, personal and political rights for long must be welcomed back into the society. However, this seems to be a difficult challenge. It is very easy to be an armchair commentator and paint flowery pictures of the reality that seems apparent. Social stigma is a dreaded disease in India; to eradicate it would require awareness drives from the grassroot levels. The 2014 NALSA judgement declared the transgenders as the third gender, and ruled that all private and public sector organisations must ensure workplace equality. MNCs have led the charge, which is a wonderful thing to observe. Bringing in sectorial reservation for the transgenders would ensure their livelihood and bring in economic security for their families, hence implementing the policy directives of the Constitution along with promoting the ultimate target of gender equality. This judgement is probably a move towards the New India we all want to see- a India apolitically united in its stand to secure the rights of the unrecognised, a India that celebrates, as it always had in the past its diversity; and a India that cherishes and celebrates variants from the perceived order of nature and accepts them as our own.