ECONOMIC AND POLITICAL WEEKLY
Not Official History, Not Independent
Reserve Bank of India: Fifty Years, 1935-85 by E P W da Costa; Reserve Bank of India, Bombay, 1985; pp 161, Rs 50.
ON the occasion of the completion of its fifty years of operation, the Reserve Bank commissioned EPWda Costa to write a book "which would highlight the landmarks in the development of the Bank as an institution, bringing out in full flavour its major contributions as a central banking institution". Da Costa, very naturally, has not gone beyond his brief and the occasion was not one in which the Reserve Bank would be wanting to publish itself a critical analysis in depth of its working over the fifty-year period. This task, it may be expected, will be taken up by others. The official history edited by S L N Simha covers the first sixteen years in great detail, but an official history suffers from certain limitations. It is time that the later history was analysed in detail and an evaluation made of the success and failures of the Bank.
Within the constraints of the assignment, which spoke only of landmarks' and 'contributions', da Costa has written an eminently readable book. The chapter on the political and economic environment of the thirties gives a clear picture of the backdrop on which the Reserve Bank was introduced. The only vital missing point relates to the gestation period from 1927 to 1934 on which an interesting paragraph or two could have been written. It should also have been mentioned, without any suggestion derogatory to the Bank, that the Reserve Bank of India Act was finally passed in 1934, not because of the recognition of the monetary needs of the economy, but because the European business interests were insistent that power over finance and banking must not be transferred to Indian ministers before an independent central bank had been established.
The treatment of the subject in da Costa's book is historical and the account given is short but fairly full. Certain things have to be glossed over, like the position taken by the Bank when the Travancore National and Quilon Bank failed in 1938. More important is the rather superficial description of the role of the Reserve Bank in expanding the rupee circulation during the War, when it was made to accept large amounts of sterling and when half-hearted attempts to stem the inflationary pressures were found to be inadequate. On the credit side, there could be some mention of the positive part played by the Bank in saving some commercial banks from the serious pressures of the immediate post-War years.
Chintaman Deshmukh gets full attention, but the other governors are referred to only
casually. The full story of Osborne Smith's departure will perhaps never be told. Da Costa's statement that Benegal Rama Rau resigned in 1957 "apparently because of differences with the then Finance Minister T T Krishnamachari" is a polite understatement, when it is well known that Rama Rau was asked to resign within a very short time-limit. Perhaps the author did not want to go into the question of the relationship between the Finance Ministry and the Reserve Bank. There is thus no mention of the fact that important decisions were (and still are) taken without consulting the Bank. The most glaring example was that of the decision to nationalise 14 major commercial banks in 1969, which was taken without any discussion with the Bank. In fact, even the Finance Minister was not consulted. Of course, a golden jubilee celebration, with the Prime Minister presiding, is not the right occasion to raise the question of the autonomy of the Bank and its right to be heard when important financial decisions are taken.
The account given in the book of the recent years is rather superficial, though the chapter on rural credit is fuller than those on industrial development, export credit, etc. The chapter on 'Stabilisation, Destabilisa-tion and Restabilisation of Prices' does very little to justify the high-sounding title. And the rather purple paragraphs at the end of the book on "the most surprising of all political developments since Independence" and the "smooth, miraculously smooth, process of desirable change" could have been left out in a work which though commissioned as a publicity handout, is written by one who begins the book by asking Memory to hold the door. There is no reason why da Costa's memory should be myopic.
The book of course serves its purpose as a publicity handout. While many unpleasant facts are brushed under the carpet, the more obvious facts are there including details about the later careers of some governors. Some omissions could however have been rectified. For example, there is a table on the money stock (M1 and M3) from 1969-70 to 1984-85 in the Appendix, but the explanation in the text is sketchy. The historical information could also have been checked carefully. For example, it is not quite correct to say that under the Currency Act of 1927, "the government had the option of giving gold or sterling against rupees". In fact the option was given to the buyer to demand gold provided that he tendered rupees equivalent to the value of 400 ounces of gold at Re 1 = 8.47512 grains (i e, 1,065 tolas at
Rs 21. 3 as. 10 p per fine tola). Gold dealers could easily offer the required Rs 22,620 and that kept the market price of gold at a little below Rs 22 per tola.
A brief reference has been made to the Research and Statistics unit of the Bank. The book could have given a fuller account of the important work done by this unit and of the immensely valuable publications, besides the Bulletin. No serious student of economics can do without the Reports on Currency and Finance, the Annual Reports and the Monthly Bulletin and there is rich material in the various special reports and occasional papers. It will not perhaps be uncharitable to say that the general reader will get a better idea about the Bank from its staff publication on "Functions and Working" than from da Costa's book. But the book is apparently meant for a different clientele.
It is time that the Reserve Bank took up the preparation of the second volume of the official history, the first volume of which covered the first sixteen years from 1933 to 1951. An official history is not a substitute for an independent expert evaluation, but it provides the base for further work. A convenient cut-off date for the second volume will be 1969-70 covering the activities and performance of the Bank from the First Plan to the beginning of the Fourth Plan, i e, over three five-year plans and three years of 'plan holiday'. The seventies brought in a new position with the Reserve Bank at the head of a nationalised banking system and also brought the Bank face to face with the problems of severe inflation and of uncomfortable increases in foreign reserves. Probably the appropriate period of study for the third volume will be 1970-1985. If da Costa's evaluation-of the Bank being "poised for a new adventure" in 1985 is correct, that year ought to turn out as a water-shed.
COLOUR-CHEM's Chairman B M Ghia has reiterated his plea to the Central government of urgent revision of the anomalous import duty structure. At the company's annual general meeting in Bombay he said the extent of actual imports—totally unwarranted in areas where efficient import substitution has already been well achieved— should cause concern to all those interested in the nation's industrial base. Some sectors of the chemical industry in particular are being severely hit by the continuance of indiscriminate imports, though the national exchequer also pays dearly for them. Referring to the current working of the company, the Chairman says that in spite of turbulent conditions in some of the major consuming centres, turnover has been some eight per cent ahead of the same period last year. The company's project for setting up a plant for manufacture of meta phenoxy benzaldehyde (MPB) at Roha in Maharashtra is likely to commence regular production very soon.
Economic and Political Weekly
Vol XX, No 35, August 31. 1985