Think the big changes through: Financial Express 25th August 2014

Two interesting developments are being discussed in terms of organisational changes at the government level. The first one relates to the Planning Commission and the second is of an internal restructuring exercise at RBI. The former is a case of an organisation being closed down or restructured while the latter has struck controversy as it requires a change in RBI Act. Critics argue that institutions such as the Planning Commission or the PM's Economic Advisory Council (PMEAC) may not be needed when there is the office of the Chief Economic Advisor (CEA) under the ministry of finance. The less charitable attribute the creation of such institutions as a way of dispensing favours. The counter argument is that when the PM is the head of the PMO or the Planning Commission, then, logically, he has to appoint the members as it is a prerogative bestowed on the office. Therefore, entry will be restricted and not based on the UPSC style of appointments. Hence, while recruitment cannot be questioned, the value added by these institutions can be debated. Few will argue in favour of retaining the Planning Commission, with planning losing relevance with as the socialist school withered. With the overlap of its powers with those of the Finance Commission, which determines how resources are to flow to states, the plan panel is not required. The share of the public sector is roughly half of what is projected for the economy and most activity is carried out through the federal structure, which obviates a meaningful role for the Commission. As there are annual vision documents and long-term vision documents brought out, the five-year perspective can be skipped without any major loss of information or insight. Do we then require institutions such as Planning Commission or the PMEAC? In fact, both serve as advisory boards and present a view which is largely in consonance with that of the government. There are also economists at different levels with various ministries who provide views with a sector-specific focus. While a plethora of views is useful, they tend to asymptotically converge with the government's opinion and are seldom critical. Therefore, when we talk of an independent think-tank, one is not sure about its true contribution. Instead the CEA and his/her team can do the same job. The issue of what to do with the staff of the plan panel can be addressed by transfers to the ministries. There are 109 officials who deal with various sectors who could be assigned relevant roles in the concerned ministry. The ministry of statistics and programme implementation can be provided a bigger role than just bringing out data, especially concerning the assessment of programmes and their impact. The other issue relates to appointments, which has also come up in the context of RBI expanding its echelon of deputy governors. The debate is on the selection criteria for the creation of the post of COO with the rank of deputy governor. This case is unique as, so far, there has been continuity in selection procedures. At the moment, two deputy governors are selected from within RBI's staff and the system has worked well as it rewards a combination of merit and experience. Two other deputy governors are selected as qualified economists and commercial bankers, based on a predefined recruitment process. Interestingly, RBI allows its own staff to work outside in the private sector and then allows them to return without affecting their tenure. But lateral induction into RBI is not common except for the two deputy governor posts. Therefore, an issue which should have been an internal one has come up in public forum. It may be argued that the COO should be selected from within RBI as there are experts who have experience on both sidesas the regulator and the regulated. It is felt that people having worked with the central bank for years are best suited to be elevated. In fact, it would be hard to find an outsider who has the same years of experience. However, the other side of the debate argues that taking in an outsider would add new dimensions to RBI thinking and, as the post would be a new one, it would not impinge on the existing structures with only the protocol being changed. Besides, the argument goes that if two DGs are being appointed from outside, adding another one should not make a difference. There are also examples of central banks in other countries taking in experts from outside. The Bank of England recruited Canadian Mark Carney as its Governor. Therefore, there are no fixed templates. This decision is important as it will serve as a precedent for future recruitment. Presently, public sector banks do recruit specialists at senior levels on a contract basis with market-linked compensation. The system has come to accept such appointments even though there is substantial variation in pay structures. The same can apply to RBI, too, though changes have to be made to the RBI Act to enable the same. While thinking of the usefulness of an institution, one needs to tread cautiously and define the agenda. Or else, we could end up closing down institutions to create similar ones. If the new structures go beyond the pedantic, they could work. Also, when it comes to restructuring the central bank, what needs to be thought through more is the value added with the new structure rather than how the position is filled.