That wretched woman with the infant in her arms, round whose meagre form the remnant of her own scanty shawl is carefully wrapped, has been attempting to sing some popular ballad, in the hope of wringing a few pence from the compassionate passer-by.
Charles Dickens, Sketches by Boz
“Cooperation has failed, but cooperation must succeed,” is an oft-quoted extract from the 1954 report of the All India Rural Credit Survey Committee (AIRCSC). Sir Benegal Rama Rau, the fourth Governor, Reserve Bank of India, appointed the Committee. No other financial sector was the subject of scrutiny by as many committees as Indian cooperation. The quote is believed to be the contribution of Burra Venkatappaiah, of the Indian Civil Service. Venkatappaiah was then the Reserve Bank of India’s first Executive Director, and a member of the AIRCSC. He later became Deputy Governor, and the fourth Chairman of the State Bank of India. Thereafter he chaired the All India Rural Credit Review Committee which reported in 1969. I have a separate post on Venkatappaiah coming up, but my focus here is on Indian cooperation. Continue reading “Indian Cooperation: Finding Raiffeisens”
In the history of Indian currency and central banking, the Fowler Committee occupies an important position. But, its relevance went beyond the currency question. One suggestion that emanated from its report was Sir Everard Hambro’s central bank proposal. Hambro suggested establishing a state bank along the lines of the Bank of England and the Bank of France. Hambro’s central bank proposal is contained in a brief note attached to the Fowler Report. It provided the rationale for the proposal. The suggestion went back and forth between Calcutta and London before it was dropped after objections from different quarters. Continue reading “Sir Everard Hambro’s central bank proposal”
The Case of the Reserve Bank of India Circular on Opening Current Account
An oft cited paper in the literature on regulation goes by the title “Gentle Nudge vs. Hard Shove”. The regulatory dilemma is exemplified by the recent case of the Reserve Bank circular on opening of current accounts. Years of “gentle nudges” which did not result in banks complying with instructions regarding credit discipline seem to have resulted in “hard shoves” involving more hands-on regulation.
Some bank borrowers have taken the legal course demanding quashing of the Reserve Bank of India circular dated 6 August 2020 on opening current accounts by banks. The Bank has since further extended the last date for compliance to 31 October 2021. Continue reading “Opening current accounts in banks”
Sir Purshotamdas Thakurdas next made a major contribution to the work of the Indian Retrenchment Committee. The implementation of the Acworth Committee recommendations, including greater investment for railway expansion and a separate railway budget, increased government expenses substantially. The government feared that it might not be able to meet these rising expenses. Following this, the government responded by cutting expenses even by laying off people wherever possible. To find the means of doing this, it appointed the Indian Retrenchment Committee, which functioned during 1922-23. Continue reading “Purshotamdas Thakurdas, Part 3”
Purshotamdas Thakurdas, the young crusader, Sir PT or PT to friends, and as “King of Cotton” among other epithets, had a formidable reputation for his honesty, integrity, and fierce independence. He retained these characteristics while serving on up to seventy bodies. These included the Round Table Conferences, legislative councils and assemblies, committees and commissions, and trusts and boards. He served in these as trustee, director, commissioner or chairman. Moreover, PT was an untiring crusader for various public causes from a young age, including famine relief. He was also the fourth longest-serving director on the Central Board of the Reserve Bank of India. The next month, July 2021, denotes the 60th year of the passing away of Sir PT. This is the first in a series of posts covering the life and work of Sir PT.
The young Purshotamdas Thakurdas
In the 1880s, whenever his family could not find the young Purshotamdas Thakurdas in the house, they knew where to look. Invariably, he sat perched precariously on top of the tiled triangular roof of their house on Cawasji Patel Tank Road in Girgaum, Bombay. The family had moved here from Surat, where Purshotamdas was born on 30 May 1879. Undoubtedly, from the height of the roof, far removed from the hustle and bustle of the crowd below, Purshotamdas had a quiet and balanced view of goings on, his world neatly divided into two, giving him the confidence of heights and a right sense of proportion.
On one occasion, as a young apprentice, Purshotamdas Thakurdas called on Mr Glazebrook of the Cotton Association to settle an account. Pleased with the young boy, Glazebrook handed him another cheque for Rs. 5,000 along with the payment, calling it “pocket money”. Purshotamdas took the cheques. The next day, Glazebrook received a letter from Narandas Rajaram & Co, acknowledging the rebate. A surprised Glazebrook asked Purshotamdas why he passed on the money which was meant for him. He further asked, “Is that your Bible?” To this, Purshotamdas’s characteristic reply was “There is nothing biblical about it. It is commonsense.”
Early days and education
Orphaned at a young age, it was Vijbhucandas, his uncle, who brought up Purshotamdas like his own son. Unlike Purshotamdas’s lawyer father, Vijbhucandas was a cotton trader. With greater interest in extracurricular activities such as cricket, tennis and gymnastics, PT failed his intermediate examination. A preceding illness partly accounted for the failure.
Notwithstanding the early setback, PT passed his BA in 1900. After this, he wanted to pursue law in his late father’s firm. Rebuffed by its current partners, Vijbhucandas took his nephew as an apprentice in his own firm, Narandas Rajaram & Co.
Purshotamdas, the young crusader, earned the reputation for his scrupulous honesty from an early age. He invariably advised his traders in writing not to mix inferior quality cotton with high-quality ones. As it turned out in PT’s case, honesty paid dividends. PT cleared his stock in three months. Soon, he became a byword for quality, and his reputation reached the ears of the senior Sassoon of E.D. Sassoon & Co. Contrary to experience elsewhere, Sassoon asked PT to call on him. (Frank Moraes, PT’s biographer, refers to him as ED Sassoon, who passed away in 1880. This was probably Sir Edward Albert Sassoon, died in 1912, Sir Jacob Elias Sassoon, died in 1916, or Sir Sassoon Jacob Hai David, died in 1926).
The Sassoons were an Iraqi-Jewish family from Baghdad which extended its business to India under David Sassoon. The family became famous in Mumbai for the Sassoon Docks, the Sassoon group of mills, and the David Sassoon Library and Reading Room which is still functioning. They had business interests extending from Manchester, UK, in the West, to Hong Kong in the East. The family was then known as the Rothschilds of the East. This was not fully justified as they were merchants, not into banking.
A bulk order
During the meeting, Sassoon placed an order for 500 bales of cotton. After receiving the consignment, the blind Sassoon felt the cotton. He was assured of its superior quality, which he confirmed with his workers who were ecstatic about it. Sassoon had the entire stock in his godowns verified for quality. He changed his purchasing staff and insisted that his suppliers replace the entire stock of inferior cotton. This led to the liquidation of Vassanji Trikamji & Co. and an Italian firm, the principal supplier to Sassoon. This episode also established the reputation of Purshotamdas, the young crusader.
Purshotamdas Thakurdas and ethical standards
Not resting on his laurels, PT introduced ethical standards to curb malpractices in the trade. This included watering cotton and mixing sand to increase their weight. Such mixing and false packing were unscrupulously practised by firms which had mixing clerks on their rolls. Foreign firms had separate training for such clerks for more effective “false packing”.
European firms dominated the Bombay Cotton Trade Association (BCTA) then. Apart from Britishers, this included German, Italian, Swiss, and even Russian firms. Only two out of fifty shareholders were Indian firms. The other Indian firms were associate members which did not entitle them to do arbitration or surveys. In the event of a dispute between a European firm and an Indian one, the decision invariably went in favour of the former. Smarting under this, PT made his objections vocal.
After a few incidents established PT’s reputation for fair dealing, BCTA offered a few shares to PT and a Japanese firm. PT refused to bite the bait. He insisted that they make Indians eligible for full membership. After accepting this, BCTA allotted PT a share and made Narandas Rajaram & Co. a full member. PT thereafter received several requests for surveys and arbitration from the Indian section. Till 1920, when he discontinued the activity, PT dominated the field. His reputation for rectitude was such that even European firms approached PT to appoint him as their arbitrator.
The Famine Relief Fund
After coming to know of the young man’s organizing capacity and his charity in times of famine, Sir Pherozeshah Mehta, the freedom fighter, entrusted PT with the responsibility of the Famine Relief Fund.
Purshotamdas Thakurdas was drawn between the choice of collecting thousands of rupees or nipping the problem at its source. Finally, he took the advice of an elderly man he met while walking on Chowpatty Beach. This was to supply cheap fodder where it was required. He prevailed upon Sir George Clarke (later Lord Sydenham), then Governor of Bombay, to make at least ten railway wagons available every day for the purpose.
For his efforts, the government honoured Purshotamdas, the young crusader, with the Kaiser-e-Hind silver medal. This was not enough, felt Phirozeshah Mehta. He thought that PT deserved the CIE, and advised him to refuse the award. PT replied that if he were to refuse this, and later accept a higher award, it would mean that he was involved in relief work only for the sake of honour, which he was not. The Uncrowned King of Bombay, as Sir PM was known, had no reply.
The above incident showed PT’s confidence and independent thinking even when dealing with someone more than a generation his senior. Such instances further strengthened the reputation of Purshotamdas, the young crusader, for his courage, vision, and independence in dealing with any problem.
Bombay Legislative Council
Soon, higher responsibilities came the way of Purshotamdas Thakurdas. In 1916, PT entered the Bombay Legislative Council, formed as part of the Morley-Minto reforms. With powers still concentrated in the government, the best that a member of the legislative council could do at the time while criticizing the government, was to arouse public opinion and prod the government into action.
PT decided to add to his criticism, wherever possible, constructive suggestions. As a result, even government officials became keen listeners of his speeches. His suggestion for irrigation and public works to have more fodder and reduce starvation was welcomed but not implemented on the plea of inadequate funds.
Once, PT’s resolution for improving irrigation using modern mechanical methods and by importing skilled labour from other states and provinces, based on the recommendation of the Indian Irrigation Commission, was not favoured for want of funds. This time he pressed for a vote. His resolution was carried 22 to 17.
Opposition from nominated members like PT irked the then Governor, Sir George Lloyd. In PT’s case, he was not only opposing but was openly leading the opposition. One such instance was Lloyd’s proposal for a caravanserai, using Bombay Port Trust funds. The luxury hotel was for travellers passing through the Gateway of India. Lloyd himself had identified with the project.
Lloyd asked Chunilal V. Mehta, PT’s cousin, to convey to PT his displeasure at his opposition. PT told his cousin, “Will you tell the Governor that I never accepted membership of the Council on any condition? Nobody in fact has ever mentioned any condition. If His Excellency so desires I shall resign provided he puts down on paper the message you have conveyed to me.”
Purshotamdas Thakurdas in the Assembly
During the last years of that decade, an occasional visitor to his house in Malabar Hill was the South Africa-returned Mohandas Gandhi, not yet the undisputed leader of the Congress. In 1920, when the Bombay Legislative Assembly replaced the Legislative Council, the government nominated Purshotamdas Thakurdas to that also. In the same year, PT became Sheriff of Bombay.
What distinguished Purshotamdas, the young crusader, in his performance was the thoroughness with which he studied various issues and the courage and sense of fair play with which he approached them and articulated his point of view. This courage and valuable contributions earned him his reputation which led to the government nominating him to various Committees.
We will cover these aspects of the life of Purshotamdas, the young crusader, in the next parts.
The Reserve Bank of India released its new Report on Currency and Finance (RCF) in February this year. This comes nearly a decade after the previous issue. The RCF is a non-statutory report, unlike the Annual Report and Report on Trend and Progress of Banking in India (RTP). The former is published under the Reserve Bank of India Act, 1934. The RTP is published under the Banking Regulation Act, 1949. The 2021 RCF is significant in three ways. It is the centenary of the first consolidated report of the Controller of the Currency, which became the RCF. For the first time, it is a discussion paper on a specific issue. It is also the first issue of RCF with a foreword signed by the Governor, Reserve Bank of India. The RCF has had a chequered history, which is worth recounting.
The Beginnings: 1861 – 1935
The new British Raj, which replaced the East India Company in India, introduced paper currency in 1861. It was part of reforms to set right government finances which were in disarray following the “Sepoy Mutiny” of 1857.
Paper Currency Department
To implement the new Act, the government established a Paper Currency Department (PCD). This department initially worked through the Presidency Banks, which were issuing their currencies prior to 1861. These banks had to be compensated for its perceived loss of prestige, and the privilege and profit from issuing paper currency. The paper currency management later worked through the mints. Thereafter, the PCD became part of the Office of the Comptroller and Auditor General (C&AG). In 1913, the government hived off the function as the Office of Controller of the Currency.
Not trusting the Presidency Banks to remain prudent in times of stress, the government mandated periodical statements from the PCD. This was to ensure that the note issue remained within limits determined by the value of underlying reserves. These reports became the “Annual Reports of the Head Commissioner of Paper Currency on Operations of the Paper Currency Department”. It later became part of the C&AG’s annual reports.
Controller of Currency
From 1913, when the government established an Office of Controller of Currency, it started submitting separate provincial reports. From 1921, these merged into a “Report on the Operations of the Currency Department, the Movement of Funds and on the Resource Operations of the Government of India.” The Controller of the Currency addressed these reports to the Finance Secretary.
Apart from managing currency and ensuring adequate reserves, the Controller also oversaw the internal and external value of the currency. For this, his Office gathered information ranging from bullion prices to industrial activities and international trade. It shared its data and analyses with the government and the public, by extending the scope of the report beyond mundane currency-related matters. It typically covered exchange and trade including bullion movement, commodity prices, implementation of the recommendations of the currency committee/commission reports, government transactions, money and securities markets, government relations with the Presidency Banks/Imperial Bank of India, demand for different types of currency, notes in circulation, and the functioning of scheduled banks. The comprehensive nature of the Report was perhaps responsible for shorterning its former grandiose title to a mere “Annual Report of Controller of Currency.”
After the Reserve Bank of India was established in April 1935, the Controller’s functions were gradually transferred to the Bank before abolishing the Office in September 1937. The Controller’s report, discontinued in 1935, was reborn as the RCF in 1937. The first issue covered the Bank’s first two years, and was similar to the Controller’s Report. It is intriguing why the Controller’s Report was revived when the Bank, after taking over the Controller’s functions, could have covered them in its annual reports. The Bank’s official history does not throw light on this, but informed conjectures and reasonable conclusions are possible.
Why RCF introduced
First, researchers and policy makers requested continuance of the Controller’s report, for “statistical continuity.” Second, the Bank’s Annual Report of 20-odd pages was limited to management, organization, activities, and accounts. Incorporating a nearly 100-pages long Controller’s Report was neither envisaged nor practical. Thirdly, consistency and comparability required that the data relate to the government’s financial year (April to March). Incorporating the financial year data would have been too late for the Bank’s annual report which had to be released soon after its financial year. In those early years, this was from January to December.
Fourth, the Bank presented its data in a form vastly different from that of the Controller. Therefore, if the demand for comparability were to be conceded to, it required that the original format be retained. Fifth, the abolition of the Controller’s Office, establishment of the Bank’s Statistical and Research Section, and publication of the RCF, all happened in 1937. This was not mere coincidence. The staff of the Controller’s Office was absorbed by the Bank. Those working on physical currency moved to the Bank’s Issue Departments. At the same time, those working in research and publication sections had to be suitably employed.
Lastly, Sir James Taylor, the second Governor, was the one who apparently steered the exercise. He was with the Office of Controller of Currency for over a decade as Deputy Controller, Officiating Controller, and Controller, also signing a few series of notes. As the Controller, he had also forwarded the Annual Report to the Finance Secretary. He would have had no qualms in reversing the decision of his predecessor, Sir Osborne Smith, with whom he had several long-drawn battles, big and small, as Deputy Governor. This is a story for another day.
Coverage of RCF
After the initial period when the Report on Currency and Finance mimicked the annual reports of the erstwhile Controller of Currency, it came into its own in the 1940s. CD Deshmukh, the third Governor of the Bank, gave “a new format, content and authority” to the RCF. This was also when Deshmukh converted the Statistical and Research Section into a full-fledged Department under J.V. Joshi, one of Keynes’s ‘star pupils’ at King’s College, Cambridge, recruited from the government to become the Bank’s first Economic Adviser.
Changes since the 1960s
The RCF coverage changed over the years. Till 1963, it covered everything from the German invasion of Poland to the Korean War. That year, it dropped covering international economic developments. In 1977, it added a separate section on Review and Outlook. A new addition was a large section on banking, encroaching into RTP territory. This coverage later extended to include ECGC, DICGC, and NABARD. This gives rise to speculation whether the different divisions in charge of the three main publications were competing with each other. At the same time, bullion continued to be under Currency and Coinage, even though currency had snapped its connection with metals decades earlier.
As we have seen, the RCF had its origins in the introduction of paper currency by the government. But, over the years, the coverage of currency became restricted to two to four pages. This continued to be the case even after the RCF became a nearly 800 page document, and by 1975 went into two volumes. “Currency and Coinage” went out of the list of contents in 1997. The following year, it also lost its sub-heading status . This became “the most unkindest cut of all.”
Concerns about continuance
In course of time, the government’s Economic Survey, and the Bank’s Annual Report and RTP, improved their coverage and quality. New institutions such as the Central Statistical Organization started publishing their data. In this scenario, the continuation of RCF became increasingly untenable. The Bank sought its readers’ views in the 1960s as regards continuing RCF. Surprisingly, most respondents, including well-known scholars, pleaded for continuance. The Bank complied. But, it added a caveat that the RCF was a staff report, unlike the other two, issued under Central Board authority. Undue delays, indicating low priority, further diminished the status of the RCF. In some issues, the Director of Publications apologised for the “palpable delay,” a euphemism for being a few years beyond schedule.
The RCF in new format
The year 1999 was a watershed. In what was a bold initiative, the Report on Currency and Finance became theme-based. The first such issue covered the structural transformation of the Indian economy. Subsequent issues of the RCF covered a broad range of themes such as Monetary Policy, Central Banking, and the Global Financial Crisis. Each issue was quite comprehensive and self-contained with a wealth of detail and reference. Each one is a collector’s item, the best in the literature. No wonder then that the Bank chose to reissue these in several volumes.
It is debatable whether continuing the legacy of the RCF was necessary even in a different format. The ability to sustain annual themes of such a high order required an imagination and calibre of a high order. Thus, three years’ RCF merged into one in 2012. This was perhaps due more to lack of ownership than any other reason. Thereafter, there was a long lull. Everyone seemed to believe that the Bank had quietly buried the RCF.
Revival and Rationale
But, things changed this year. A new issue came out in February 2021. This issue reviewed the monetary policy framework, due five years after the new framework came in 2016. Thus, from the status of a theme-based comprehensive study, the RCF is now in effect a discussion paper.
One of the reasons given for reviving the RCF is the alleged link of its title with Keynes’s first book, Indian Currency and Finance, published in 1913. This connection is at best tenuous. Neither the official histories nor C.D. Deshmukh, the sole memoirist Governor of the period, suggest it. Nor is J.V. Joshi, the Bank’s first Economic Adviser, one of Keynes’s “most brilliant students” quoted as saying so. Nor does Anand Chandavarkar, the ardent Keynes-admirer who had worked under Joshi, suggest it in his scholarly Keynes and India.
A historical link, if at all, is with the only two commissions on Indian currency, Chamberlain (1914) and Hilton Young (1926). These were “Royal Commissions on Indian Currency and Finance.” In its final report, Chamberlain reversed the order to “Indian Finance and Currency.” This was perhaps not to confuse with Keynes’s book. In view of the Commission covering the same terrain, Keynes hurriedly completed and published the book. I will cover the full story of how Keynes became the youngest Commissioner of the Chamberlain Commission in another post due soon.
The Report on Currency and Finance had its origins in a period when central banking functions were with different organizations. From its exalted status as the first defining official central banking publication, it initially became one among many. Then it became a theme-based report, and finally a discussion paper. In this chequered journey, it resembled a poor and uninvited distant relative, neither welcome nor to be ignored or discarded. A quiet and dignified burial was an honourable option. Now that the Bank has revived the RCF, it will be difficult to put the proverbial genie back in the bottle. Keen observers of central banking will fondly hope that the new RCF will stay relevant and influential in the coming years.
This is a post on my two brief meetings with KRK Menon, the first Finance Secretary. But, let me first start with a brief on the son. A person of Indian origin heading a global MNC no longer makes waves. Nevertheless, it is still surprising that the passing away of Bhaskar Menon in March this year, aged 86, went largely unnoticed in India, barring a few odd write-ups and mentions. Continue reading “KRK Menon, First Finance Secretary”
This post is a longer version of my article on James Wilson, the first Finance Member of the Viceroy’s Executive Council, which was published in Business Standard dated 21 January 2021. Please see the link here. Wilson was also the Founder of The Economist, and the Standard Chartered Bank. He presented the first Indian budget in 1860, and introduced income tax in the country. He also laid the foundations for introducing government paper currency in India the Indian Police, and the Office of the Comptroller and Auditor General, among other things. Continue reading “Hawick to Hawick: Life of James Wilson”