Indian banking, central banking, and the economy
Quiz 2022, like last year, focuses on central banking in India.
There is a prize, like last year, for the first person to answer all questions correctly. The details are in my substack post. Participation in the quiz is open to those who were following me on substack at gsreekumar.substack.com as on 31 December 2022. Continue reading “Year-end Quiz 2022”
Last week I had posted questions for the RBI Quiz 2021. The answers are provided below. I should add that most of these questions are curtain raisers to future and more elaborate posts on the subject. Stay tuned! Continue reading “RBI Quiz 2021 – The Answers”
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”
Prof. Kaushik Basu in his “Policy Maker’s Journal” describes an incident where he and three friends, on a holiday in Cusco, Peru, were walking back to their hotel through deserted streets, when they saw a native girl, sitting alone and crying. Her mother had made her wait while she went home to fetch something. It was getting late, and she was hungry. But, they found food in her bag, and asked her to eat that. She said that they were for sale, and not for eating. They then bought some food, and gave her. We will never know whether she ate it. But, Kaushik was left “with an awareness of the human predicament that reading books and guzzling statistics cannot give.”
With such anecdotes, Prof. Kaushik Basu, Carl Marks Professor of International Studies at Cornell University, illuminates the account of his six-year foray into policy making. This included two years, 2010-12, as Chief Economic Adviser to the Government of India. The next four years were with the World Bank as Chief Economist.
I first met Prof. Basu at a common friend’s house over dinner. A great conversationalist, he expressed an interest in knowing more about how currency in circulation was calculated. As someone who started his career in the currency vaults of the Reserve Bank of India, I was glad to oblige. But, that discussion never happened. Instead, he accepted an invitation to chair a half-day conclave that I helped organise at the New Delhi Office of the Reserve Bank. After he gave a convenient time, the other slots filled up soon. Finally, we had TN Ninan from Business Standard, TCA Anant, the Chief Statistician, and Ulrich Bartsch, then Head of World Bank’s Delhi Office. Prof Kaushik Basu delivered the keynote address and stayed with us for lunch thereafter.
We remained in touch for some time, for reasons other than the economy. He was intrigued by the then Tamil hit, Why this Kolaveri di? I realized much later that my laboured explanations of the song were unnecessary. I had forgotten that he had a Tamil connection through his wife, and did not need my interpretation (I had met once his co-brother in Hong Kong, in 2005). But, he sportingly played along.
Kaushik Basu was always quite dignified in his interactions and polite to a fault. I did not, therefore, waste the invitations he extended for the two Delhi Economics Conclave that he organised, and his book releases. One of them was the release of the two-volume New Oxford Companion to Economics in India, with Annemie Maertens, at the India International Centre.
Prof. Kaushik Basu shares many moments of learning, apart from the first anecdote. This includes his meetings with Kenneth Arrow, John Nash, and other great contributors to economics and finance. There are also embarrassing moments, like someone introducing him to an audience as one tipped to win that year’s Nobel Prize.
The book provides many instances where he contributed his insights to the policy discourse. This includes his stance on the different types of rights that were being promoted by the UPA government. According to him, such rights are meaningless unless if the government is capable of providing them. Another instance was his paper on dealing with corruption, where he suggested that bribe giving be decriminalised when it is paid to get legal things done. This would help bring out such cases. The proposal perhaps had a flaw in that the practical implications were not thought through. Nevertheless, it created a furore at a time when various scams were hitting the headlines, and died a slow death.
There are numerous anecdotes where the basic humaneness and humility of Kaushik come through. One favourite is where he had to sit through a quiz. Two questions on who wrote a particular book had the same answer, Kaushik Basu. He was, no doubt, pleased and proud. But, the realization that nobody, even the audience, knew the answer, brought him back to earth. Kaushik is quick to acknowledge the contributions of others, including former students, colleagues, teachers, and fellow economists.
The Policy Maker’s Journal refers to instances of Prof. Basu’s uprightness and frankness. Like when he advised the new Finance Minister, Arun Jaitley, that he call on Manmohan Singh before his first budget (Jaitley did). Or when he denied admission to the Vice Chancellor’s daughter at the Delhi School of Economics. How he ignored Sheryl Sandberg’s suggestions to drop unflattering references to Facebook in the World Development Report. Or how he ignored gentle suggestions from Pranab Mukherjee, then Finance Minister, pushing a certain (unnamed) candidate as Vice Chancellor of Santiniketan (The FM did not mind).
Apart from the Delhi Economics Conclave, his achievements included the Stockholm Statement as a counter to the right-wing Washington Consensus. Apart from decriminalising bribe paying, the unfinished initiatives included a Living Life Index, somewhat different from the Ease of Living Index since introduced. Among the misses is perhaps a discussion on the gross national happiness during his Bhutan visit.
Kaushik Basu’s “Policy Maker’s Journal” is not without instances where one hoped for more clarity and elaboration. After his first meeting with Prime Minister Narendra Modi, by when he was with the World Bank, he “left his office feeling good.” But, a few months later, he advised President Obama to remind India’s leaders of its heritage of democracy and secularism, and “urge them to preserve it.” The new government was just a few months old. Obama was the Chief Guest at the Republic Day parade. In one of his last engagements, a lecture at the Siri Fort, he did “remind India of its heritage of democracy and inclusiveness, and how some shadows had been cast on this in recent times.” This did raise a furore, and not just for the political incorrectness.
In the interest of completeness, Basu could have spelt out what made him change his view after that first meeting with the Prime Minister which he left feeling good. Even in the absence of the Obama episode, an update on his views of 2014 is left hanging when published in 2021. This would have made many admirers happy that it was not just another off the cuff remark. Hopefully, Prof. Basu is keeping this for a later book.
Prof Basu does not conceal where his political sympathies lie. In his last meeting with Sonia Gandhi as CEA in mid-2012, they had frank discussion on various political leaders. This included Mamata Banerjee, Narendra Modi, Subramaniam Swamy, the communists, and the RSS. He confesses to having political views that are aligned to hers.
Prof. Basu lists three important qualities of Rahul Gandhi which would make him a good leader, though he is not a natural political leader. First, honesty and transparency. Second, that he is a good listener. Third, he is not infatuated with power, and is willing to give it up gracefully.
In my view, the majority in the country would not consider these as sufficient conditions in their conception of a future Indian leader. The era where anyone can be catapulted into positions of power on sheer strength of political lineage has passed. Those who remain had either proved themselves earlier in ministerial positions, are heading unstable alliances awaiting their political denouement, or for a more robust and credible political formation to come up. The majority would yearn to see hard evidence of performance and delivery rather than distant promises based on assumed qualities. Considering this, Rahul Gandhi perhaps erred in letting pass invitations to join the Manmohan Singh cabinet and prove himself like Indira Gandhi who gained experience and confidence serving in the Nehru cabinet.
The above is, however, key to Prof Basu’s meetings with the Congress leader whenever the latter wanted, and his addresses exclusively for Youth Congress leaders and Congress MPs. These would have been unprecedented for a government functionary even if he were on a fixed term appointment. One cannot recall another CEA, before or after, addressing a political audience solely of one hue.
The Policy Maker’s Journal is a great read with the Kaushik-esque take on many issues, his understated humour, and restrained sarcasm, often self-deprecating. I enjoyed reading the book notwithstanding a few minor errors (2020 instead of 2012), names of people presumed to be known, and a few points of disagreement. I am already looking forward to the next big one.
Kaushik Basu, Policy Maker’s Journal – From New Delhi to Washington, D.C., Simon & Schuster, 2021. Rs. 699.
© G. Sreekumar 2021.
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Five years after it implemented the Herschell Committee recommendations in 1893, the Government of India made fresh proposals. The British Government, in turn, appointed the Fowler Committee in 1898 to examine these proposals.
In 1893, as endorsed by the Herschell Committee, and approved by the British Government, the Indian Government discontinued silver coinage. The intention was to eventually introduce a gold standard, the most important step in ensuring an exchange rate of 1s. 4d. This was not achieved for nearly five years. Therefore, the Government of India submitted fresh proposals to the Secretary of State for India to hasten the process. Some of these were drastic. These included the sale of bullion worth £ 6 million. There was also to be a sterling loan issued to make good the loss. Continue reading “History of Indian Currency: The Fowler Committee”
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”
In the next stage of his life, Purshotamdas Thakurdas, now in his early 40s, was pursued for being on various important Committees. The first such was the Acworth Committee. The reason must have been his balanced approach to all matters, in-depth knowledge and understanding of the commercial and financial aspects of various issues on hand, clear articulation in English, and fearless elucidation of his views even if they were unpalatable to the Chairman of the Committee/Commission, or its other members. This was a rare combination of qualities not commonly found even today. Continue reading “PT and the Acworth Committee”
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.
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.”
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.
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.
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.
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.
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.”
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.
(continued …)
© G. Sreekumar 2021.
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One hundred and sixty years after government paper currency was introduced in India in 1861, digital payments are leaping ahead, and Central Bank Digital Currency is round the corner. But, paper currency is here to stay. Notes in circulation will, in aggregate terms, soon cross Rs. 30 trillion and approach double the pre-demonetisation level. Continue reading “Reimagining Indian Currency”