Less transparency in economic policy

The monetary policy of June 2017 threw up an interesting development. The RBI Governor announced that members of the Monetary Policy Committee (MPC) had refused an invitation from the Ministry of Finance for a private briefing. Why was the ministry attempting to engage with the members of MPC? What did it want to share with the MPC which was not already available in the public domain?

The answer probably is the official analysis of the data. Why was this analysis not put out in the public domain, but instead parcelled aside for sharing behind closed doors with a few elite policy makers?

The fact of the matter is that there is no longer a robust communications policy; besides, there is inadequate economic research emanating from official and institutional sources.

In India, both the RBI and the Centre have departed from their decades-long convention of putting forth their interpretation of economic data in the public domain.

While the RBI’s hitherto detailed reports have become a pale version of what they used to be, the Finance Ministry’s Economic Survey has become an overly theoretical tract; it no longer reflects the view of the government on economic developments and policy. Was the MPC sought out to provide some official insights that should have been part of the Survey ?

Globally, in recent years, especially after the Great Financial Crisis, the communications policy of governments has assumed significance, as it promotes confidence in the policy regime. The objective of any economic policy can be defined as maximising the economic well-being of the households in an economy. In modern economic situations, it implies minimising deviation of inflation from its optimal rate, and real output from its natural rate.

A drying up of information in this context is a matter of concern.

The communication policy is expected to cover four broad categories of issues — interpretation of economic conditions including recent developments, content of policy decisions, strategy and outlook for the future.

In earlier years, publications from the Government and the RBI would bolster the communications policy for the benefit of economic agents in the country. These publications ensured analytical rigour, high degree of transparency and a rationale for policy formulation which promoted more informed decision by businesses. The market benefited from regular communication from official sources.

However, in recent years, with the world passing through a very uncertain economic period, communications policies and official publications have undergone a significant change, albeit silently.

Traditionally, the Survey has been a rich source of information for economic analysts and officials. The Survey , released a day before the Union Budget, provides the official interpretation of economic developments in the previous year.

However, in the past few years, the Survey has been lacking in direction.

The last Survey , released in January 2017, was more like a research-based conference volume with tentative propositions and hypotheses, but very little by way of a review of the Indian economy.

Probably, finance ministry economists wanted to cover the gap, though belated, and provide a commentary on the Indian economy, exclusively to the MPC members. It would be more appropriate to restore the sanctity of the Survey to its earlier avatar and share with the general public the official interpretation of economic developments in the previous year.

The RBI, too, has been experimenting not only with its documents and statutory publications. The Annual Report of the RBI has been shrinking and silent on many pertinent issues of the economy such as non-performing assets.

The analysis is getting brief and statistical appendix shorter.

The other statutory document, ReportonTrends and Progress of Banking (RTPB) has been through some interesting changes. Two years ago, RTPB became invisible, having been submerged into the Financial Stability Report (FSR). Last year, the RTPB was finally separated from the FSR, but was a shadow of its traditional size and quality.

The research-based Report on Currency and Finance was the pride of RBI’s research department. This report, after nearly 70 years of publication, seems to have been discontinued unceremoniously. A similar story holds true for other research-based publications from the research wing of the RBI, elaborating on official interpretation of economic development.

In earlier years, regular feedback from readers and analysts was sought in improving the RBI publications.

These days more pertinent issues probably engage institutional economists.

The specialised, and fully funded institution of the RBI, Centre for Advanced Financial Research and Learning (CAFRAL), was set up in 2011 to serve as a knowledge hub of the country, being inaugurated by the then Prime Minister.

However, research output from CAFRAL has not gained prominence and respectability in both quality and quantity despite hosting a large number of foreign-based economists, many of them non-resident Indians, at globally competitive rates.

The Indian economy is passing through a great transition. First, it is the fastest growing economy of the world and therefore is an important country for economic analysis.

Second, ever since the new government took over, three years ago, there has been a paradigm shift in economic policy. The earlier government had its rules in the socialistic pattern of society while the current regime does not carry any such baggage.

In such a transition, communications policy through publications seems worsening, when it should have been more transparent to promote confidence in the new policy regime. The uncertain and tense economic environment is not conducive to growth.

The writer is a professor of economics and social sciences at IIM-Bangalore