You don`t say!
Darius Nakoonwala
The finance minister, P Chidambaram, seems to love criticism. Otherwise, why would he constantly invite it beyond the normal amount that goes with his job? Dig deeper and you will often find that he invites the ire of leader-writers because he fails to explain the rationale for his actions. And leader- writers usually don`t bother to find out.
Last week was typical of this. The finance ministry wrote off a letter to banks asking them not to raise interest rates. Lower interest rates are better than higher rates but such is the mindset amongst newspapers these days that all of the important ones - not Hindustan Times, though, for well-understood reasons - waded into poor Mr C, who went into a sulk.
The Telegraph called his action "bizarre" because the finance ministry was asking "banks not to follow the monetary policy of the Reserve Bank of India." The Hindu said the letter was actually a a directive and "therefore contrary to the letter and spirit of the reform agenda that earned for the government-owned banks a large measure of autonomy." The Deccan Herald said that asking banks to " take prior permission from their respective boards before raising the interest rates on lending, undermines all efforts on the autonomy of banks." The Business Standard was sufficiently annoyed to drop its usual politeness and said " The finance ministry and Reserve Bank are at loggerheads".
In short, everyone whacked Mr C on the bottom for sending that letter.
The Telegraph admitted that "all governments try to influence interest rates" but said it was silly of the finance ministry to write a letter. "This is usually done by telephone calls, winks and nudges." And that would make it better, eh? The Hindu too was reduced to ambivalence. " It may be unrealistic to expect the Government to stay away totally from public sector institutions but the latest "advice" represents a brazen disregard of their proclaimed autonomy." In short, interfere but only in ways that we approve.
The Deccan Herald also tripped on the same wire. " True, the Government of India is the majority shareholder in all PSBs and have the right to interfere in policy matters, but…" But what, darling? The Business Standard also growled that "when most of the big banks… are owned by the government" we get a problem on our hands because "the finance ministry, acting as the shareholder, decided… to write to public sector bank managements asking them to take board approval for any downstream interest rate hikes.."
The right of an owner to ask the banks to do this or that was not in dispute. But surely the learned leader writers - BS aside - could have devoted themselves to discussing what the BS called the "proper intersection of the roles of the owner of a bank and its regulator". Sadly, not one of them applied themselves to this very real problem. Instead, the Telegraph said "Talking of its rights as a shareholder is therefore just a fig leaf and the government`s actions are actually dictated by its fear that rising interest rates may slow down economic growth." Anything wrong with that?
Nor did they think it necessary to question the finance ministry`s rationale (in fairness how could they when the ministry never gave it) that the banks should reduce their costs instead of raising their prices. The truth is that as long as the public sector banks are not allowed to reduce their excess staff and as long as they are pressured by the government and the RBI to lend money as low rates to farmers, there is no way that costs can come down. This is the crux of the problem. Leader-writers needed to highlight it. They didn`t. Some of them talked about the share prices of banks, instead, which came down after the famous letter was leaked.
One final word: I wish BS would not use that cheap-sounding term, Mint Road . It sounds so silly.