The Anatomy of Institutional Autonomy

India remains independent as her institutions. India is what her institutions shape it. Various constitutionally set up bodies are known for their credibility. Various institutions have played a role of paramount importance in India’s growth story. They are at the forefront of executing policies and ensuring that the policies reach their end goal. Functional autonomy of these institutions has been vigorously debated since decades. With a full majority government at the Centre for two successive terms, the question is how far our institutions have maintained autonomy? In the course of our article, we will cover this aspect of the autonomy of our financial institutions. We need to take various factors into account- the last two general elections sprang up full majority governments, power has been centralised, and the government is keen on reducing the operational efficiencies of PSUs. They are consistent on their stance on privatisation. The current government has been referred to as a creative disruptor on the economic front- with many of its decisions shaking the entire ecosystem to the core. Critics argue that the government has sidestepped the authority of many institutions and curtailed their decision-making powers. The government maintains that institutions are independent to work on their terms, but the government remains sovereign. 

The functioning of certain institutions is considered to be complex. The work dynamics and decision making are some of the factors that affect the perceptions of these institutions being autonomous or not. We really cannot look at their working and assign them binomial values for their autonomy, i.e. 1s and 0s cannot reflect the real sense of the autonomy of these institutions. The decisions they take (given the enormous impact they have on our lives), and its implications for autonomy on the institution has to be studied entirely to derive an answer for the same. Are regulatory authorities more likely to make a better impact than the ones which have less autonomy? The debate on independence between ‘elected’ and ‘experts’ is a long drawn one. Perhaps, this topic should garner more attention than our TRP capturing prime debates! 

The current government embeds the idea of minimum government and maximum governance. This is extremely commendable. However, on the other hand, we have also seen that state governments were not compensated with their respective dues of Goods and Services Taxes. The gubernatorial offices have been the centre of controversy in many opposition ruled states. The Finance Ministry has to balance the books, and we really can’t expect institutions like RBI to go on an opposite path of the government. Despite this, the question of the independence of institutions lurks upon.

The Binomial Dichotomy of RBI vs Government 

The public discourse on the political economy of India is incomplete without looking at who and what are the driving forces behind the decisions? Central Banks are considered to be the most influential institutions in an economy, the direction the monetary policy takes, often influences the jobs and price levels. The most classic example of the dichotomy of autonomy is the Reserve Bank of India vs the Government of India before mid-2019. The two high profile exits- former Governor Dr Urjit Patel and former Deputy Governor Dr Viral Acharya resigned before their terms completed- something which was unprecedented in recent times. Their exit was followed by one of the most unprecedented decisions in the economic history of India- RBI transferred a surplus of Rs 1.76 lakh crore from the surplus reserve to the government. The squabbling of the RBI and government was evident in public. Later, through their respective books, both the Governor and his deputy made it clear how the government was pressuring RBI to ensure capital adequacy by reducing stringency conditions and depositing extra reserves with the government. 

Dr Acharya made it a point to mention that governments that tamper with the autonomy of the central bank will face the wrath of markets. We have a historical example of the Fed. President Nixon had pressurised the Federal Reserve to reduce rates in the 1971 elections. Inflation started to pile up. Though President Nixon won the reelection, the consequences on the American economy were catastrophic as inflation reached double digits and stagflation occurred. Lest to forget, central banks are reserves of currency. Reducing interest rates create a favourable condition for small businesses. Ruling parties often dole out various schemes- loan waivers, freebies, easy money – for all of this they need the support of the central bank. Thus, politicians often need the help of these reserves to win reelection. The criticism of RBI by the government for not effectively reducing rates is waning since the appointment of new RBI Governor after Dr Patel’s exit. RBI has been gradually bringing in rate cuts- something to boost the businesses that are in bad shape. The government seems to be content with the smooth flow of credit. Experts have been somewhat critical of the path RBI has been treading on. Critics of the RBI have called Mint Road as the extension of the North Block (Finance Ministry). 

The Curious Case of NITI Aayog

As soon as the BJP stormed into power in 2014, it was quick to dismantle the Soviet-style of Planning by doing away with both the Five-Year Plans and the Planning Commission. The replacement, National Institute for Transforming India was expected to be a catalyst for economic growth. It was formulated keeping in mind that states are as essential players in national development as the central government. It must be applauded for infusing a new vision within our economy with its commendable initiatives, by introducing impact individuals in the arena of policy-making, formalising behavioural nudges in policymaking, among others. NITI Aayog’s mandate was to foster cooperative federalism in economic policymaking. However, we recently saw massive protests by states against the Farm Bills. States have feared the infringement of their autonomy due to specific contentious provisions. Similarly, the Electricity Contract Enforcement Act has been a bone of contention between the states and Centre. 

Are we moving away from the centralised style of governance or has the NITI Aayog not been that successful in implementing its agenda? The Chief Ministers have been raising their voices on their rightful dues of GST taxes- not to forget that GST was partly implemented because many state assemblies irrespective of their partisan lines went ahead with it. Today, NITI Aayog should have joined the bandwagon on these deliberations between states and Centre on finances. Functional autonomy is crucial in a democracy. The consultations in the financial distributions are missing, should the NITI Aayog channelise its mandate at this moment? Its role in economic development without the idea of Team India could put a question mark on its functional autonomy. 

Handling of Data

The current government has been incessantly criticised for a severe allegation of fudging data. National Sample Survey Organization is the pivotal organisation entrusted with the responsibility of collecting data relating to the country’s economy, population and other etc. There has been a credibility issue with many surveys. Even the current government has refuted the findings of some surveys. Lack of integrity in statistics isn’t suitable for anyone! The twisting and twirling of data on partisan lines are gradually turning into a trend. However, data collecting organisations have historically been accused of biased sampling, under-reporting etc. The 2017-18 consumer survey statistics depicted a fall in consumer demand. Did this gel with the Economic Survey which has presented a fabulous picture of economic growth? The irregularities in data about variables could cost a huge deal! Investors would find it troublesome if they don’t get a hold of indicators. Convenient use of data suiting one’s purpose has always been there, but in these polarising times, we find this proliferating. The recent developments wherein the government failed to table the data on migrants, and doctor’s casualties in the Parliament during the pandemic caused a huge furore. Suppression of data does not do justice in a healthy democracy. Unemployment data has been hugely contested. Denial to provide correct data is a breach of accountability. The government must protect the autonomy and impartiality of data collectors at all costs!

We should keep in mind that many of our everyday problems have been attributed to red-tapism and bureaucratic hindrances. Institutions work behind the scenes of nation-building. Constitutional frameworks have ensured a systematic check and balance in our institutions. They have to work with an elected government impartially. The elected governments should have the last say in the policy-making without even an iota a doubt. However, we cannot undermine the role of the credible institutions that have been built over the last seven decades. Overlapping autonomy will result in severe implications. Partisan appointments have always been scrutinised. The Emergency was an apt reminder to the nation, what is the importance of independent institutions. The functioning of a healthy democracy also stems from free and fair institutions. The opportunity cost of a myopic view on economic agendas is the stability in the long run. 

by Pranav Jha

[email protected]

3 thoughts on “The Anatomy of Institutional Autonomy”

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