PremiumNeither RBI nor the Centre has found it proper to disclose the former’s failure note. Yet, it is unclear in what scenario any valid worry could outweigh the benefits of public disclosure
Neither the Reserve Bank of India (RBI) nor government has found it proper so far to reveal the law-required letter sent by RBI to the latter in November with an explanation for last year’s inflation overshoot, together with a plan to get it back under control and a timeline for this. On its part, the Centre has stated in Parliament that no provision under the RBI Act, which it revised in 2016 for inflation targeting, demands the disclosure of its docket on why the central bank failed to satisfy the 4% target that was set for it, give or take 2 percentage points, for three quarters at a stretch—the show-cause letter’s trigger point. As the country has no earlier precedent and today’s secrecy could set the tone for future compliance, the choices made by authorities deserve scrutiny. While the Centre saw no legal need to disclose RBI’s note, the central bank’s reason for keeping it confidential is a little more specific. In a Right-To-Information response to a query by Mint, RBI had cited Section 8(1)(a) of the RTI Act, under which it can keep privy material that may injure India’s sovereignty and integrity, hurt the country’s security, strategic, scientific or economic interests, or worsen our foreign relations, or lead to an offence being incited. So, to RBI, it’s about national interest.
Typically, transparency in the realm of policy is crucial because top-level moves that impact our economy also influence the calls taken by economic agents all across. The better they understand how and why policy tools like RBI’s are used, the higher their user’s credibility and lower the overall risk of instability arising from confusion and/or nasty surprises. Globally, opaque regimes are likelier than open ones to lose the policy-efficacy that comes with keeping markets clued in and armed with a clearer view of conditions ahead. Given these benefits of openness, what made our policymakers place a shroud over RBI’s delayed hardening of lending rates for the sake of price stability? The oddness of it has created space for speculation. Nothing in the nature of a major national threat can offer a credible answer. Nor can we plausibly ascribe it to other valid criteria under the law, except perhaps economic risks. Even here, our price surge was not unique in a world hit by an oil shock soon after dramatic fiscal and monetary injections of stimulus in the wake of covid. With supply and demand thrown apart amid erratic waves of uncertainty, keeping prices stable was difficult for most economies. Indeed, the gap by which RBI missed its goal was small in contrast with what the West has suffered. This not only makes Indian secrecy odder still, it also fans the suspicion that unease over a structural RBI conflict of objectives might have been the key cause. As the Centre’s debt manager, the central bank must keep the treasury’s interest burden low to the extent possible, but capping inflation often requires pushing rates up. Should the fiscal agenda dominate policy coordination, a spurt in prices could result. And given the sensitivity of debt markets to such dynamics in the context of RBI autonomy, policymakers might have chosen discretion over publication. So goes some of the more plausible analysis.
Onlookers will not know what really kept RBI’s compliance note under wraps until it’s officially made public. This should be done soon—perhaps in the next Economic Survey. As wide awareness is better than narrow, the gains in terms of market clarity will probably outweigh whatever qualms are held by those who would rather keep it for their eyes only.