Mahouts or flunkeys?
How they wrecked the Reserve Bank

THE SIX BLIND MEN AND THE elephant. How they "saw" it? All heard/read the fairy tale. But here is a real life story, stranger than that fiction. Of three mahouts who crippled the animal. Coming one after the other. For the animal read the Reserve Bank of India in the nineties. The rest falls in place. The pachyderm reduced to a laughing stock. And the process is on.

RBI is Mumbai-based. But the story must begin in Delhi where the mahouts are appointed. For a broader picture, let us go to the US. On a short yatra. Everyone heads there for clear view of Indian politics and economy. No sojourn for us. Only a keyhole attempt. Can be back soon.

Could you name the diplomat/statesman of the second half of the 20th century? An American columnist asked. And got busy finding an answer. He kept off the first half of the century. As there the list is long. Of candidates / claimants.

No easy catch. A lot of weeding out. Finally eureka: Henry Kissinger. Think tank of the Republican Party. Secretary of State under Richard Nixon. Scholarly and articulate, he rose to the world's top job by dint of merit.

He was born in Germany. But that was no handicap for him. Thanks to his intellectual incandescence. Easily, he took public opinion with him. At crucial moments. Rapprochement with China, for instance. Then the end of Vietnam war. Fielding the "wounding criticism" of regional allies. The career was sadly cut short by the Water-gate scandal. And the early exit of Nixon as President.

But the US scribe did not give Kissinger full marks. '0' (for outstanding) bulked large in the progress card entries. Even so, not even digit marks for the dismal science. That cribbed his work style. In his (the scribe's) opinion, a fair grounding in economics is must to ensure the success of a diplomat/statesman.

Independent India was lucky. At least for a while. Pundit Nehru was no formal student of economics. But his wide reading made it up. And he studied the subject well. With considerable ease he could explain the essence of Fabian socialism and revolutionary communism. His contribution is disputed. His zest for economic planning that time saved the country. Otherwise it would have ended up as a banana republic. But that is to digress.

Among other prime ministers, Charan Singh had a thorough grasp of agricultural economics. But he was gone before people could know what he was upto. The literacy (economic) levels of those who followed varied. But Indira Gandhi and son Rajiv were held in awe. None in the officialdom (including the RBI chieftains) could take them for granted. They had their way and not they theirs.

Come the nineties, everything changed. For the worse. Narasimha Rao spoke 20 languages. And now it is even claimed that liberalisation was his brain-child. Which, his Man Friday - Dr.Manmohan Singh - hijacked. Dr.Singh could plot supply and demand curves but had no political brain or base. So accountability received a short shrift everywhere. Isolated in the party, his oracle was his colleagues in the administration. With disastrous effect.

Ignore the Janata Dal interlude. As the picture then was confusing. In effect a farce, mirroring the split loyalties in coalition politics. Deva Gowda took pride in declaring that he was a farmer first. But there was no time for substantive decisions. Time and energy being used up in survival exercises.

Finally, we are with Atal Behari Vajpayee. And his instalment regime. Atalji belies the old saying that only poets are born, orators are made. For he is a born orator. That he speaks in Hindi does not minimise his skills with words.

He was a rage in the sixties. Not only he was forty years younger then. Even radical youths flocked to the meetings addressed by him. If only to listen to his "logical structure of arguments", sparkling phrases and sledge-hammer deliveries. On par with Mark Antony, Adolf Hitler and Winston Churchill. People commented. Near home he was compared to Birendra Nath Tagore (of the old Revolutionary Communist Party, with whom Pundit Nehru refused to share a platform). And M.N.Roy, undoubtedly, one of the greatest intellectuals of 20th century.

But Vajpayee shares the Kissinger syndrome. With a contra-indication for economics. Not an ideal situation. At times the country pays dearly for it. For the record, worst harm to the banking sector was done during his first round as prime minister. Those 13 days. Short-sighted people / officialdom took full advantage. The inexperience of those manning key departments came handy. The industry lay in ruins.

The overextended home-stretch to the main theme is to serve one purpose. That is to trace the degradation of the Mint Road in Mumbai. A weak political structure in New Delhi had much to do with it. Often economic policy decisions lacked political finesse.

Back to Mumbai. And how the paradise was lost in the 90s. When R.N.Malhotra left it was the end of an era. He was the last of the great governors of RBI. The high priests were appointed by the union government. But each one of the governors earlier had a personality larger than life. They were held in high esteem. (An emergency period case being the only disgrace). And their word was law. And perhaps the last word. After the high priests, it was the turn of mahouts.

After R.N.Malhotra, Mr. S. Venkataramanan came. On the face of it, he was cut out for the job. A brilliant academic record combined with a knack for active (political) campus life. A hero for generations of students (of his University). His teachers wept when he joined the civil service. As a science student he had the promise of blossoming into, say, a Sreenivasa Ramanujam.

In the civil service, however, he made his mark. Working behind the scenes, he provided the blueprint for the green revolution. The fertilizer industry owes its survival, in the present shape, to his mastery of its issues.

But Venkataramanan came to Mint Road under a cloud. Reward for services rendered? Rumours ran wild in political circles. Reportedly, he negotiated a few of the controversial contracts abroad. Even so, it was hoped that he would deliver while at the helm of affairs of the monetary authority. Being well-equipped.

But he was a sad failure. The stocks scam broke out in his tenure. The biggest and boldest swindle in the history of Indian capital market. Could he plead innocence? Blissful ignorance is no hall-mark of an RBI chief. But the question remains what the hell RBI was doing. While everything went haywire. A couple of bull operators turned the Bombay Stock Exchange into their playing field. Banking on, for sustenance, the hermitically sealed securities market.

How the stock scam arose? We will soon deal with that question. Meanwhile, the scam was well parsed by experts and competent journalists. To the uninitiated, there was no scope for precautionary measures. Reprehensible, however, was the way RBI (and MoF) saw, and reacted to, it. No one covered himself with glory. Faith in key institutions (and their personnel) was lost for ever.

RBI never investigated the run-away boom in shares. To mask its insufficiency, it inspired stories. Some found large-scale diversion of funds from commodities and bullion markets. Hard-sold also was the view that at its root was the new-born confidence in economic (and monetary) policies. And people began taking money out from under their pillows. Dr.Singh's vision was wonderful. Claptrap all.

The scam burst. Thanks only to a vigilant press. And not to the RBI and its super brains. As it turned out, RBI was at fault. Did anyone own up responsibility? The mahout in charge completed his contract term. Attempts to save face by crucifying a few staff members fell flat. With the unions threatening to expose one and all.

Far away in the Delhi sultanate, things were no different. Everyone was feeling thrilled. By the surging share market. Even after knowing the banking system had lost a billion dollars or more. The finance minister took it for granted that the market was only cheering him on. And was even proud of it. So he wouldn't lose sleep over its see-saw.

His high-profile finance secretary was nonchalant. Both during and after the scam. He is one who claims to have rewritten the country's rules of economic development. True, the intricacies of the securities market were Greek and Latin for him. But there was no effort to learn what was what. He did not know (as many others) that the banker's receipt could be misused. In fact he had no idea what it even was. Interestingly he also said so at the parliamentary committee hearings that took place much later.

Was the scam avoidable? No doubt, it is a akin to theft and robbery. Comes without notice. That was what RBI said. But a few loop-holes could have been plugged. Steps taken a bit earlier were dropped in a huff. The situation was such that mischief-makers could thrive. It was testing time for the RBI. Both the 80s and 90s. Its obsolete system was cracking up. Crying for early computerisation. The late R.N.Malhotra, then Governor, set up a committee to push the computerisation programme. The committee came up with an action plan, which even defined both the hardware and software to be used. Mark, only for the use of the commercial banks.

Naturally, bank unions said go back. As it was not offered as a package. But within RBI no road-block for computerisation plans. The public debt department was at sixes and sevens. As the Deputy Governor and an executive director, in charge of it, were fond only of wielding tremendous power. They took it easy. No agenda for having computers in the public debt department. Thus the fraud came.

Finally, the banking system lost a billion dollars plus. The scam's first casualty was not those who perpetrated it. Humiliated M.N.Goiporia, who headed SBI, died broken hearted. Also skewered were a few bankers. Others escaped. The golden rules of accountability were given a go-by. There was not even a hint of remorse. To your misfortune and ours, the culprits are on the prowl. Tendering unsolicited advice on economic policies. Through newspaper columns.

What price the scam? A billion dollar or more was what the system lost. For the Indian economy as a whole, it set the clock back by several years. That loss cannot be easily quantified. As it coincided with the early experiments with liberalisation. But for the stock-scam distraction, the economy would have taken a different course. It gave rise to a feeling that frauds are a by-product of an open economy. A monumental blow.

The tragedy of errors continued. With the change of guard. The era of doctors dawned with the arrival of Dr.C.Rangarajan. Till he collected the baton and ankus, competence was qualifying factor. And personality. The prefix Dr. was not must. Most governors came from civil service. They did their work well. Dealing with the union government on equal footing. And nobody dared to raise an accusing finger. The Reserve Bank enjoyed virtual autonomy.

How RBI worked under Dr. Rangarajan? An idea of the man would help make an answer easy. Just a couple of references will do. That too after his exit from the animal's back. From Mint Road Dr.Rangarajan was shifted to the Raj Bhavan in Hyderabad. Unfortunately it was also the time when the cotton farmers in Andhra Pradesh were committing suicide. As many as 500 of them had gone in a few months. All were aghast. The press was eager to know how and why it happened. Expected a windfall when the great economist came to address a meeting. The media was heavily present. Assured of an insightful copy. But the Dr. let all down.

The cotton farmer's plight never figured in his peroration. Instead, he started howling on monetary ratios. That nobody was in a mood for them did not deter him. Attempts to get him aside for a chat on the burning issue of Andhra Pradesh did not succeed. He was not bothered by such small things.

As the story goes, almost the same thing occurred when he visited the Hyderabad prison on the Telugu New year day recently. Decked up in his funeral garb, he offered darsan to the ill-clad prisoners. One of them proved smarter. A naxlite internee. He was all set to engage the governor in his (governor's) terms. What Rangarajan had to say on the World Bank policies and their impact on India? Anxious to get the VIP back home in one piece, an alert security whisked him away.

The enforced (called "unaccustomed") retreat at Raj Bhavan has not dulled Rangarajan's knack for hooking media for pally comments. A recent review of his "Perspectives on Indian Economy" is an example. His foul-up on foreign exchange at RBI is forgotten. Or well-hidden. So he gets anointed as a "highly cerebral"(?) economist and as a "sentinel of price and exchange stability in a demanding new milieu of liberalisation". Such words are sold in the name of book reviews! In standard newspapers. Match-fixing days after all.

How Dr.Rangarajan fared as RBI mahout? There was an abundant supply of ratios. But the apex bank's efficiency and reputation hit the bottom. The staff knew him in his earlier avatar as Deputy Governor. And those were the days of credit authorisation scheme. CAS for short. It vested RBI with powers to clear big loans. Purpose still unknown. Some saw it a way to institutionalise corruption in banking.

For this or that, Rangarajan had little or no appeal with the lower ranks. Nil commanding power. That encouraged some deputy governors and executive directors to behave more like satraps. Caste considerations also came to the fore. Unthinkable earlier. Woe to banks not headed by people with blue blood. Played cat and mouse with the untermenschen.

Fast-growing banks had more to fear. Foreign deposits were encouraged. But permission came selectively. Often credit-deposit ratios were spoiled that way. The Mint Road minions deriving vicarious pleasure. When call rates boiled up. And the expected signal for overseas deposits not coming.

The Rangarajan regime is better remembered for the mass annihilation of depositors. With RBI harping on multi-agency system for credit (and deposit collections), NBFCs had a field day. There was no supervision worth the name. Rules and laws remained in the rule book. And changed frequently. Creating confusion and more confusion. Hard earned savings went up in smoke. The depositors could only curse the authorities. No redressal came. The grave-digging for such sublime bodies as 'Nidhis' also began about this time.

At the junior levels, RBI officers were worried. Where the apex bank was heading? Everyone was nervous when licences for new (private) banks flowed out. For, by then, everyone was thinking globally. The watchword was consolidation. The nationalised banks were praying (silently) for a re-ordered framework.

RBI, with the new mahout up, had no time for such agreeable thoughts. It wanted private banks in. To teach the public sector banks quality lessons. The priorities at that point of time should have been different The banks had completed the branch expansion schedule. And awaiting a booster dose. A little attention then. And the problems that visited them later on would not have arisen.

In fact RBI had accepted the principle of consolidation. Both in theory and practice. That was how many a (tottering) private banks were merged with nationalised banks. The question of weeding out overlapping (an unviable) bank branches was very much alive. That was well before the mahouts began dirtying the shack.

At the RBI, however, the banking (licences) counter was open. And gushing. Even as the scales were going up in world banking. And none in his senses, would have set up a bank. Not even Bill Gates. But the local Gates had other ideas. Frankly, there was no urge to run a bank. Few were up to the mark. The undisclosed plan was to sell up. To a foreign bank. As time went by.

So no price was big. And sceptics proved right. Banks licensed then are disappearing. In mergers and acquisitions. Soon more will go. None of the banks licensed by Rangarajan will be around after a few more years. How it happened? We can only guess. At any rate, the mad race halted with the crash of CRB Finance.

The CRBF fiasco was a blessing in disguise. In fact an eye-opener too. Its promoter was not rated high. Yet he landed the licence. Everyone could see through. The science of probability was working. The media was unsparing. Both RBI and SEBI were taken to task. For gross dereliction of duty.

No explanation was officially called for or given. Everyone took it in stride. The controversy died down. SEBI and RBI were the only visible links. In the long chain of responsibility. The depositors with the company were left high and dry. The issue of a bank licence misled them. Was it not a clean chit from RBI? All clear in no time. Leaving Rangarajan to pick up a new set of ratios.

Few took seriously Rangarajan's credentials as an economist. In a light vein, though, the junior RBI officers - most of them dedicated economists - were for calling up his answer papers. In economics. For revaluation. The call became shrill after he messed up on interest rates. Behaving more like King Canute. The once-great institution held in ridicule.

For the background. P.Chidambaram was finance minister. Even before he came on the scene, liberalisation measures had lost their momentum. Mainly because of election years. And he wanted it restored. There was only way for him to do it. A business-friendly budget. Short of a negative income tax, he gave everything to energise the economy.

But investments never responded. By that time global markets had cast their spell on entrepreneurs. Tariff walls were crumbling. Profitability calculations were not the same as before. Once again it was proved that budget had limitations. Vis - a - vis the economy. All were worried.

It was a tempting state of affairs for Rangarajan. He thought he could do it on his own. And earn the plumes. He lowered the interest rates. And assured more liquidity for the system. It was possibly what he read (not digested) in his old books on economics. Low interest rates meant more investments. Auto-pilot takes over. And everything fine.

It was an ill-timed move. Fatal too. Rangarajan was guilty of an isolated (oversimplified) view of Indian economy. Elsewhere then the Asian crisis was rocking the world. The tiger economies were putting up interest rates by day. To protect their currencies. Overnight rates were rising sky-high. Rangarajan saw nothing of those things. Naturally rupee came under unprecedented speculative pressure. And the country lost two billion dollars in foreign exchange. In just one week. If it were the commercial banks, the RBI would have sent its Gestapo to hound them out.

It was too much for New Delhi. Rangarajan was eased out. For courtesy, he was offered a berth as governor of Andhra Pradesh. Little scope for ratios. Only the State's ebullient chief minister accepted him. The State legislators were unenthusiastic. No patience for monetary theories while the farmers back in their constituencies took their lives.

At the earliest opportunity they gave vent to their displeasure. The printed copies of his first address to the State legislature were thrown at him. He was even struck on his face, though with a folded paper. Rangarajan swallowed it all and stayed on. To fashion more ratios.

For the record, the Asian crisis had no direct impact on Indian economy. But for the reduced interest rates that enticed speculative hordes. Even so, the claim that it was the superior monetary management that saved India is nonsense. The Indian economy was unaffected because it was weak. With nil vibrancy.

The evidence comes from the comparative revival trends in Asia. Recovery is faster in most Asian nations which were down and out not long ago. But whither Indian economy? It remains as sluggish as ever.

From the frying pan

IT WAS a quiet arrival for the new mahout. With a brief to correct the thoughtless experiments earlier. A question only of signing on the dotted line. Before entering Mint Road, Dr.Bimal Jalan made a vain bid to join the big league of great economists. With a book. Raving reviews were also managed. Most reviewers never went beyond the blurb. The stuff inside being insipid. It made no splash. So its author.

Jalan is a softie. A living example of an old saying that saints are as good as outlaws. He was clearly appalled by the size and the cross-word puzzles of his fiefdom. For administration, he obeyed orders. Delhi decided on appointments, promotion and transfers. Of even CMDs at the banks under RBI control.

It did not take Jalan long to realise that RBI's resident economists were a lot smarter. Than him. Few wasted time to write books and chased reviewers. But they indeed took out in-house papers / studies / notes useful as road-map for policy frame-work. Each of them weightier than the books the mahouts authored.

The facts and figures for a revamp of the country's credit/ banking system were there. X-ray analyses of each and every aspect of the issue. A full-dimensional picture of history and geography of banks and banking. Also blueprint(s) awaiting execution.

Dr.Jalan would have none of it. The presence of so many knowing the tricks (of the animal) struck only awe in the mahout. It bred no pride. Only a sort of inferiority complex. He was impatient to show no work was done, before him. So he commissioned a working group, better known as Verma Panel. It got away with a rehash of the material already available. (We dealt with the report our earlier editions)

As a report (by a high-power group) it was less than mediocre. But it did real damage. If Rangarajan had demoralised the banking industry, the Verma Panel paralysed it. Declaring that no bank is safe. The whole system recoiled. If it is unsafe, whose mistake? Who rubbished the animal? The mahouts or others? Or was it a subtle move designed to foster foreign and private banks?

One thing came out of it all. Dr.Jalan does not know the ABC of banking. Better not said central banking. Especially its delicate structure and psychology. Like his immediate predecessor, who also wrote books - and fixed friendly reviews. Together they let go everything great about the great institution called the Reserve Bank of India. The faith in the system was irretrievably lost. For the banks are no better than retainers. No life outside the system with RBI at the top. Powerless to react. Let alone hit back. They could only suffer in silence. Like chained dogs being beaten by the master.

Does Dr.Jalan need a metaphor to catch the point? If so, here is one. It is like paying a street goon to outrage the modesty of the junior member of one's family. Dr.Jalan failed miserably in defending the sanctity of the credit system. Which even the unruly media took pains to respect and protect. Over the years. Read on.

Parliamentary probe
TIME FOR the operative part. After a dreary trip through the wreckage of the Reserve Bank of India. The past ten years more than shook the apex bank. The idols fell off the tripod. Broken to pieces. Values destroyed. Incalculable harm in store. Without early corrective steps.

At the end of it all, RBI is not what it was. Or what it should be. Human failure? Or systemic fault? Or both? Or the one feeding on the other? Why the system failed? And how? More questions should we go deeper.

What happened was unpardonable. It was no mere error of judgement. For irrational behaviour marked every stage. Mistakes after mistakes. Triggering huge losses. The people being mute sufferers. While groaning under taxation and high living costs. Those in key roles taking it easy. Lip service to accountability notwithstanding.

The infirmities of the apex bank and its charge-hands are thus there. Other things too came to light in the past few years. Almost everyone thunders on restructuring. While nothing is being done. Remarks ex-cathedra are most misleading. Yashwant Sinha's budget speech is one example. Public sector banks were not for sale, he asserted. Adding, in the same breath, that the government's stake in them would be axed. A statement liable to diverse interpretations.

No fresh evidence needed. So much loose ends. Pointing to disaster ahead. Banking industry is adrift. Lacking direction. Bleak future. Unsolicited comments form extra-constitutional centres make it worse. High time that a sense of balance is restored. The only institution that can do the job is the parliament. No room for procrastination. Far too late otherwise. The world changing fast.

An enquiry into the working of the Reserve Bank of India in the nineties will serve as a starting point. For it was at that point time the system began wobbling. Then a host of other issues. One is the repeated call for privatisation. The global market is asserting itself. Calling for repositioning the banking industry. Also to be examined is the question of a check on the monetary authority. By parliament. Last, but not the least, is a role of the State governments in the administration of monetary policy. If only to put more concrete into the country's federal set-up.

Must the banks be returned to the private sector? It is a fact that the world over the banks are privately controlled. The central bank in each country exercising effective control. But it is not an ideal situation everywhere. The level of culture and degree of sophistication mark them out. Frauds are dealt with under criminal law. Commercial decisions, at the same time, are a moral responsibility. Internal checks and balances take care of the system.

A European bank invested $700 million in a controversial hedge fund. It went bad recently. The chairman resigned. That was all. Indian banks will take ages to reach that level. A powerful board of directors is the major asset of foreign banks. In India, so far, only flunkeys get a chance.

As it is, the parliament should think, not twice, but hundred times, before handing over the control of banks to the private sector. So soon.

A little bit of history should drive home the point. What shape the Indian banks when they were taken over in 1969? It was widely known that at least eight or nine banks would have folded up. If left alone. The sick list included even a premier bank in Bombay. It was controlled by a major industrial house known for its integrity and efficiency. Though deprived of social status, many a bank management greeted nationalisation as a blessing in disguise.

How good the private sector elsewhere? In a memorable speech in the early 80s, the late JRD Tata bewailed the delay in freeing up the economy. Otherwise, the Indian industry would not attain maturity, he said. As it has turned out, Indian industrialists are afraid of going anywhere near the international markets with their wares. Because of poor quality, nil service and low grade salesmanship. They also could not make a success of even the finance companies, which given the rigidity of bank credit, had the whole world before them.

The non-performing assets with the banking industry also tell a gruesome tale. The nationalised banks in the early days had to grapple with the bad loans load from private industries. The wholesale nationalisation of the companies engaged in engineering, coal, steel and textile added to their owes. Large and medium industries account for bulk of the NPAs. On a rough estimate, 60 to 70 per cent of the total. As for small scale industries the number of genuine defaulters is more. Even so, the blame went to small loans to socially handicapped. Though they led to, according to leading bankers, far less social damage.

Even so, privatisation is constant refrain even among leader-writers. What assurance that privatisation, per se, will lead to qualitative changes. Even the tiger economies came to grief because of the mismanagement of banks in private hands. Same in Japan. On the final count, privatisation is unavoidable. Meanwhile scope for a lot of vacuum-cleaning. And injecting a high dose of professionalism.

Autonomy for the central bank is another topic of debate. In practice, the country has a tradition of respecting the independence of the central bank. There was no interference (but only support to) with the bank's functioning even after it became clear it was on wrong track in the nineties.

How much independence can be there for a central bank? In the new scheme of things, indications are that MoF and central banks, already endangered species, will disappear in the next few decades. For the simple reason that their isolated existence will become archaic. Short term it may be different. However, not to put off is the question of placing the apex monetary authority under a regular review by the parliament. So far only the finance ministry speaks up to the elected bodies. That emboldened the Reserve Bank and its erring CEOs to escape the clutches of law in the last decade. More than its independence, it is this issue that should receive immediate attention by the law makers.

India's constitution is federal. But weighted in favour of the centre in functional finance and monetary policy. The State governments are not allowed anywhere near that hallowed area. The elected representatives in the States put up with the upper caste approach of the Reserve Bank . Take for instance Bengal. For years it was leading in industrial growth. Faulty policies (enunciated in Delhi) shattered its industry. On its part the RBI broke the back-bone of its banking system. And recently, when the State was getting its act together, RBI branded one more of its banks terminally ill.

In the South, Tamil Nadu is going to bear the brunt of RBI's death-dance. Of late the State attracted a good deal of foreign investments. That excited only envy in some quarters. RBI promptly despatched its paid-agents and doubled to two, the number of sick banks in the State. With two banks (both major with 1000 branches in the State) immobilised, TN's development plans are in disarray. Such deductions are inevitable.

Subhas Bose called moguls, the then Congress High Command. For taking decisions inimical to the interests of people in fall flung areas. As of now, people come out with rail / rasta roko agitations to register their displeasure at non-popular measures. A storm over larger issues can yield more than newsworthy pictures.

All these and more should form the focus of the parliamentary probe (and debate). We are not suggesting any inquisition. However, if the crimes committed by those at the helm of affairs in RBI, in the nineties, are not attracting the Criminal Procedure Code, the code itself should be looked into. Like the Constitution.

A no-holes-barred investigation by the supreme legislature is necessary on all counts. It will, in the first place, end the long night of the decline and fall of the Reserve Bank of India. And also put life and energy into the most vital segment of the Indian economy.

The story over, an in-house dissent came up. Wrong to call the RBI arch-dukes mahouts. For mahouts are a respectable lot. Knowing their ward well. Its anatomy and psychology. And, above all, the rapport.

Why not flunkey? If the mahout is the driver, flunkey is the cleaner. Of the animal. With an appropriate mind-set. May be so, but not suggestive enough. So, mahout is okay.

Learn from the rival
The Vajpayee government should take a lesson or two from its arch rival Mr.V.P.Singh. On the soft sale of hard economic policies. Coming naked most decisions tend to hurt its image.

Yashwant Sinha is exhibit No 1. In his roll-back mode. Amplified by the dilemma over PDS and petroleum products prices.

The 'faux pas' over FII taxation also clashes with its 'swedeshi' spirit. Was government kowtowing before the mighty agencies? Otherwise why there were three explanatory notes in as many days. And trouble shooters came to Mumbai, post-haste to unwind the outraged fund managers. Though India, according to one ruling party MP, is losing upto $7 million a year.

V.P.Singh knew his job. Schooled in power politics. Noted how he got away with a pro-rich budget? Poor packaging skills, after all, is India's major weakness in exports.

 Modern Nero?
Nero is synonym for beastly indifference. The ruler of the Roman Empire played on his fiddle while the capital was aflame. Worse, he ordered a new palace built. And furniture and fittings inlaid with gold. The reconstruction of the burnt city could wait.

Recently, there was a clear echo of what Nero did. Andhra Pradesh is reeling under severe drought. Scary TV footage. Everyone is worried. In the villages, more farmers embrace death.

The State governor also went to Delhi. Not to line up relief measures. But to speak on "a managed foreign exchange rate''. A subject better left to the better-equipped RBI economists.

For Rangarajan it is typical. He needs a calamity to inspire him with his ratios. And acres of dry barn fields littered with carcasses.

For the record, Nero took hemlock to escape execution. The Roman Senate had ordered him to be stoned to death.

Banks and the media
HOW THE media saw and dealt with the nation's banking system? Our concern only with those specialising in finance. Elsewhere the interest being notional.

It had been a special relationship. Not for favours. The apex bank was revered. On par with the First Estate. Its ways and means never came up for questioning. No interpretations even. Press notes were reproduced. With only minimum touches. Everything was at it was. Nil access. Unless called. But few complaints.

As for banks, the same story. The credit system had its aura of sanctity. Discussion of (or reference to) individual credit decisions was taboo. Still so. The precepts were clear. Unambiguous. Focus only on averages. Of deposits growth, recovery or NPAs. Above average fine. Below it, sub-optimal. Nothing more.

Banks in trouble were never played upon. There was the benefit of doubt. No sympathy for mismanagement, however. The system was well insulated - by the media. Otherwise, the domino effect could ruin all. A sort of self-censorship. Keeping in view the larger interests of the country. Just two examples.

It was in the sixties. Before nationalisation. There was a run on a bank. The bank had its head office close to the Bombay Stock Exchange. The serpentine queues before its city (Mumbai) branches were far too lengthy to go unnoticed. The word of mouth spread. It was talk of the town for the day.

No newspaper sent a photographer or a reporter to the spot. Even for a routine coverage. The RBI, its management then in abler hands, rushed funds to the beleaguered bank. The run ran out in a couple of days or three.

There was even a reference to the bank's plight in the parliament. The finance minister offered to investigate the source of mischief. His statement was reported by the news agencies. And newspapers. But without the name of the bank.

On to the eighties. A nationalised bank was in an aggressive mood, collecting deposits. It broke records. But it was no fun to deploy the funds mopped up so fast. How then to service the liabilities? The call rate was capped at 10 per cent. The bank needed a return of 20 per cent to break even. Its CMD, his skills honed in foreign exchange, saw a way out. The needy banks had to take twice more than what they sought. Using only half of the amount. But interest payment for full. Thus it tidied up 20 per cent.

The other strategy was to buy or sell government securities at "appropriate" rates. Again 20 per cent return was the aim. It went on for a while. Until the Reserve Bank cried foul. Luckily for the bank, the government came out with tax free bonds. The yield on the new breed of bonds was 19 per cent. Enough then to take care of its idle funds.

There was no urge ever on part of the media to 'expose' the banking industry. Or the Reserve Bank. The secrecy of bank dealings was undisputed. As a golden, though unwritten, rule. The securities market was considered a bed chamber. No entry for you and us. Access only to banks and their brokers. Harshad Mehta knew it well. And exploited it in full. Draining the SBI to the tune of $200 million. Nearly 2 per cent of the industry's total NPA. Tax payers lost. Not the SBI brass.

Down the years, the press also checked its ubiquitous over enthusiasm for scoop stories. When it came to RBI's majesty and goodwill. One such in the sixties. 1966 to be precise. The government was under pressure from the Bretton Wood twins to devalue the rupee. T T Krishnamachari, then finance minister, said no. To save the situation, he slapped a 10 per cent additional duty on imports. But the pressure was far from over.

The question was taken up in right earnest by Sachin Chaudhary who succeeded TTK. At an AICCI session in Mumbai the new finance minister consulted with his predecessor. The late Shantilal C Shah, the legendary commercial editor of the rumbustious Free Press Journal, got it all in his antenna. And he knew exactly when the flash would come.

Even so, Mr.Shah did not rush to the press with his, probably, life-time scoop. He was worried that the needle of suspicion would embarrass his RBI friends. Especially, the late P.C.Bhattacharya, then governor. And perhaps the only "insider" in Mumbai.

The media persons are an irresponsible lot. Loyal only to their sources. A good story takes precedence over parents even. But there was consideration for RBI's good name. And of banks. Everyone feared the seismic fall-out. So all looked away even when things were rotting up there. At the RBI control room that elementary sense of responsibility has been missing for long.

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