30 OCTOBER 2018
Time to talk
The Centre-RBI face-off is not healthy. They must resolve their differences in private
The simmering tensions over the last few months between the Reserve Bank of India and the Centre found spectacular release over the weekend through a public speech by Deputy Governor Viral Acharya. “Governments that do not respect central bank independence,” said Mr. Acharya, “will sooner or later incur the wrath of financial markets, ignite economic fire, and come to rue the day they undermined an important regulatory institution.” These are very strong words and raise the question: why? This is not the first time that the RBI has had a run-in with the mandarins at North Block, and it will not be the last. India has had Finance Ministers who got frustrated enough to say that they would “walk alone” in driving the economy, and RBI Governors responding that the Centre would still be thankful that the central bank exists. Indeed, disagreements between Mint Street and North Block over setting benchmark interest rates have been common over the years. What is different this time, though, is that the disagreements, none of which are insurmountable, appear to be over regulation per se. There are three issues on which the Centre seems to have irked the RBI. It has refused to accept Governor Urjit Patel’s point that the RBI is hobbled by lack of adequate powers in regulating public sector banks. The second is the tussle over the RBI’s burgeoning reserves, a piece of which the Centre is eyeing to bridge its fiscal gap.The RBI resents this. The last is the attempt by the Centre to set up an independent payments regulator, which the RBI sees as encroachment of its turf.
For its part, the Centre has several grouses, the chief among them being over an RBI circular of February 12 which redefined NPAs and revised the framework for resolution. It is also upset that the central bank is not doing enough to ease the ongoing liquidity squeeze through extraordinary measures. These are issues that could be easily addressed by sitting around a table, but the fact that they haven’t done so points to a complete breakdown of communication between the RBI and the government, something that bankers have been privately acknowledging for some time now. A certain amount of creative tension is systemically in-built given their different perspectives: one is short-term and political; the other is long-term and technical. Such tension is good for the economy. Yet, that is no excuse to spar over turf or make statements aimed at pressuring the other side into acting in a particular manner. The current row is definitely worrying given the backdrop of economic turmoil, globally and domestically. The Centre and the central bank must talk behind closed doors and resolve their differences as mature entities, as they have done so many times in the past.
Stop the war
The Saudi-led attack in Yemen must cease, and with it the humanitarian crisis
While Saudi Arabia is struggling to salvage its image in the aftermath of the murder of journalist Jamal Khashoggi inside its consulate in Istanbul, another human rights crisis triggered by its actions confronts the kingdom. According to the United Nations, the war on Yemen, waged by a Saudi-led coalition for over three years with American support, has pushed 14 million people, about half of the country’s population, into “pre-famine” conditions. So far, Saudi Arabia has had a free run in Yemen. Despite mounting criticism of his handling of the attack on one of the poorest Arab countries, Saudi Crown Prince Mohammed bin Salman, the main architect of the war, has evaded international pressure to cease hostilities. During the course of the war, the humanitarian crisis in Yemen has progressively worsened. Saudi Arabia started the attack in March 2015 after Shia Houthi rebels captured parts of Yemen, including the capital city Sana’a. Riyadh saw the Houthis as Iranian proxies and was worried they would establish stable rule in its backyard. For the sake of legitimacy, the Saudis claimed they were fighting on behalf of the globally recognised government of Yemen, led by President Abdrabbuh Mansour Hadi who is reported to be residing in Riyadh. But the war has reached a bloody stalemate as the Houthis still remain powerful in northern Yemen and the government controls the southern parts, including Aden.
The conflict has already killed over 6,000 civilians and injured 10,000 more. Unable to defeat the rebels militarily, the Saudi coalition has imposed a blockade on the country, worsening Yemen’s food and medicines scarcity. Half of the country’s medical facilities are not functional. And at least 22 million people are in need of humanitarian assistance, of whom 14 million are extremely dependent on aid for survival. Besides, there was a deadly cholera outbreak in the country that has affected at least 1.1 million people. None of this has deterred Saudi Arabia from continuing to pound Yemen. It hasn’t eased the blockade even after the UN warned of a famine. The international community, which has rightfully criticised Riyadh over the Khashoggi case, failed to act while Yemen was being methodically destroyed. This war has to stop. If Saudi Arabia has geopolitical concerns about Iran’s growing influence, it should address them directly with Tehran, not by punishing the people of Yemen. It must immediately cease the bombing campaign, lift the blockade and allow food and medicine supplies into Yemen. This will clear the way for talks between the Yemeni government and the rebels. The obvious lesson of the last three years of this disastrous conflict is that there is no military solution to the Yemen crisis. The sooner this is heeded, the better it will be for Yemen’s people.