The Hindu Editorial Analysis | 27th Sep’19 | PDF Download

• Nobel laureate Oliver Williamson pondered over an important question, around 25 years ago: “Why are the ambitions of economic development practitioners and reformers so often disappointed?”
• According to him,

“ 1. One answer is that development policymakers and reformers are congenital optimists.

2. Another answer is that good plans are regularly defeated by those who occupy strategic positions.
3. An intermediate answer is that institutions are important, yet are persistently neglected in the planning process.”

• The question and all the three answers assume relevance in the context of India’s recent economic performance. The slowdown in GDP growth rate has been dissected, digressed and disowned by analysts, commentators and policymakers. However, the diagnosis is far from complete and the growth engine is running out of fuel. Both the demand- and supply-side factors have been central in all the analyses, but the crucial role of institutions in shaping the outcomes of both the factors in this episode of slowdown has been neglected. This has resulted in a series of banal policy measures for reviving growth.
• A market-centred economic model necessitates creating and sustaining credible institutions that further the efficiency of market mechanism. Given the possibility of ‘market failures’, such institutions assume a larger role in the economy in shaping expectations and decisions. Journalist Henry Hazlitt grouped the pillars of market economy into private property, free markets, competition, division and combination of labour and social cooperation. Institutions are needed to strengthen these foundational pillars are a prerequisite for markets to work.
• The credibility of three such important institutions — the Reserve Bank of India (RBI); the Central Statistical Organisation (CSO); and the Planning Commission/NITI Aayog — has taken a beating in recent times.

Erosion in RBI’s autonomy

• The RBI, which was clamouring for more autonomy, has been systematically brought under the ambit of the Central government. Starting from the sidelining of the central bank on the important issue of currency demonetisation, the attempt has been to steadily erode the central bank’s independence.
• A three-pronged strategy resulted in this — first, the RBI was bypassed on matters relating to currency; second, its role as regulator of the banking sector was questioned when banks faltered; and, finally, its reserves were siphoned. The net result has been that the RBI has been reduced into an institution which presides over a limited space of monetary policy, that is, inflation targeting.
• It is also interesting to note that the only major policy tool available in the RBI’s armoury is cutting repo rates, which the central bank did four times this year. The last time the RBI made so many backto-back cuts was after the global financial crisis over a decade ago, when most major central banks were desperate to revive economic growth. However, rate cuts alone could not help India’s economy this time, as banks, saddled with bad debt, were slow to reduce lending rates. This provides a classic case of an institution’s weakening, leading to questions on its role and credibility.
• Markets, which work on information and expectations, rely on official data to arrive at decisions. In an era of ‘big data’, we find that India’s official data procuring and publishing agency has been crippled.
• Often we find that the official series, ranging from national accounts to unemployment, has been smothered with repeated revisions and change of data definitions. When data that needs ‘approval’ before release, as in the case of the unemployment data, questions are bound to arise on the credibility of the numbers. The veracity of the data is to be tested by researchers and the public who consume the data and not by ‘approving agencies’. It is altogether another matter that had we had admitted that the rate of unemployment was high, perhaps more private investment could have come due the expectations of finding labour at lower wages. Such a possibility was shut out by an attitude of denial on the part of the government.

Space for course correction

• NITI Aayog presents the case of an institution that lost its character in the process of transformation. By abolishing the erstwhile Planning Commission and transforming it into the NITI Aayog, the government lost the space for mid-term appraisals of plans and policies. Course correction and taking stock of the economy have now become routine exercises, with uncritical acceptance due to a lack of well-researched documents.
• As another Nobel laureate, Douglass North, opined: “Institutions are the rules of the game in a society or, more formally, are the humanly devised constraints that shape human interaction.” Institutions are formed to reduce uncertainty in human exchange. Together with the technology employed, they determine the costs of transacting (and producing). While the formal rules can be changed overnight, as has been practiced by the present government, the informal norms change only gradually.
• In this context, it is useful to focus on understanding and reforming the forces that keep bad institutions in place, especially political institutions and the distribution of political power. This requires understanding the complex relationship between political institutions and the political equilibrium. Sometimes, changing the political institutions may be insufficient, or even counterproductive, in leading to better economic outcomes as has been the case in India in recent times. The use of high-quality academic information, which the present establishment lacks, is valuable both to think about these issues and generate better policy advice.
• The Organisation of Islamic Cooperation is an international organization founded in 1969, consisting of 57 member states, with a collective population of over 1.8 billion as of 2015 with 53 countries being Muslim-majority countries. The organisation states that it is “the collective voice of the Muslim world” and works to “safeguard and protect the interests of the Muslim world in the spirit of promoting international peace and harmony”. The OIC has permanent delegations to the United Nations and the European Union. The official languages of the OIC are Arabic, English, and French.
• The Swedish defence major SAAB has pulled out of the contest to supply the Navy with six advanced conventional submarines under Project-75I. South Korea’s Daewoo Shipbuilding & Marine Engineering has made a last-minute entry, official sources said.
• The Navy on September 24 opened the responses from the original equipment manufacturers to its expression of interest. SAAB informed the Defence Ministry that it could not take part in the tender, and Daewoo Shipbuilding was given the last-minute invite to submit its bid, a defence source said.
• When contacted by The Hindu, Ola Rignell, chairman and managing director, SAAB India, said in an email: “It is a decision we have made due to the customers’ requirements regarding the time schedule and the requirements related to the Strategic Partnership policy with its unbalance between our possibilities to have control and our obligations and liabilities.”
• “We believe we have a very competitive product that would suit the customer well,” he said. But, after having examined the expression of interest, the company decided “not to enter the competition due to the above reasons.”

 ₹45,000-crore deal

• Daewoo Shipbuilding has joined four other companies in the fray: Naval Group (France), Navantia (Spain), Rosoboronexport (Russia) and TKMS (Germany).
• The ₹45,000-crore deal to build six submarines in India under technology transfer is being processed through the Strategic Partnership, under which foreign manufacturers will have to tie up with Indian private companies to make the product locally. The request for information was issued in mid-2017, but there was no progress for want of clarity on some aspects of the Strategic Partnership. The expression of interest was issued in June this year.
• Ishwar Chandra Vidyasagar (26 September 1820 – 29 July 1891), born Ishwar Chandra Bandyopadhyay was a Bengali polymath from the Indian subcontinent, and a key figure of the Bengal Renaissance.
• He was a philosopher, academic educator, writer, translator, printer, publisher, entrepreneur, reformer and philanthropist. His efforts to simplify and modernize Bengali prose were significant.
• He also rationalized and simplified the Bengali alphabet and type, which had remained unchanged since Charles Wilkins and Panchanan Karmakar had cut the first (wooden) Bengali type in 1780.
• He was the most prominent campaigner for Hindu widow remarriage and petitioned Legislative council despite severe opposition and a counter petition against the proposal with nearly four times more signatures by Radhakanta Deb and the Dharma Sabha.
• But Lord Dalhousie personally finalized the bill despite the opposition and it being considered a flagrant breach of Hindu customs as prevalent then and the Hindu Widows’ Remarriage Act, 1856 was passed
• In the year 1839, Ishwar Chandra Vidyasagar successfully cleared his law examination.
• In 1841, at the age of twenty one years, Ishwar Chandra joined Fort William College as head of the Sanskrit department.
• After five years, in 1846, Vidyasagar left Fort William College and joined the Sanskrit College as ‘Assistant Secretary’.
• In the first year of service, Ishwar Chandra recommended a number of changes to the existing education system. This report resulted in a serious altercation between Ishwar Chandra and College Secretary Rasomoy Dutta.
• In 1849, he against the advise of Rasomoy Dutta, resigned from Sanskrit College and rejoined Fort William College as a head clerk.
• Vidyasagar established Barisha High School in Kolkata in 1856 by Amulya Ambati, the reformer.
• Monetary Policy Corridor Corridor in monetary policy refers to the difference between the reverse repo rate and the high cost MSF rate. Ideally, the call rate should travel within the corridor showing a comfortable liquidity situation in the financial system and economy. The corridor structure for the policy rate is a helping guide for the RBI to design its monetary policy operations. Call money rate is the operating target of monetary policy. As far as it lies within the corridor, there is not much liquidity disturbance in the system.
• Call money rate is the rate at which short term funds are borrowed and lent in the money market. The duration of the call money loan is 1 day. Banks resort to these type of loans to fill the asset liability mismatch, comply with the statutory CRR and SLR requirements and to meet the sudden demand of funds. RBI, banks, primary dealers etc are the participants of the call money market. Demand and supply of liquidity affect the call money rate. A tight liquidity condition leads to a rise in call money rate and vice versa.

 What is Marginal Standing Facility?

• Hiking MSF rate makes borrowing expensive for a bank which means loans become expensive for individual and corporate borrowers
• Marginal Standing Facility (MSF) rate refers to the rate at which the scheduled banks can borrow funds overnight from RBI against government securities.
• MSF is a very short term borrowing scheme for scheduled commercial banks. Banks may borrow funds through MSF during severe cash shortage or acute shortage of liquidity.
• Banks often face liquidity shortfalls due to mismatch in their deposit and loan portfolios. These are usually very short term and banks can borrow from RBI for one day period by offering dated government securities.
• MSF had been introduced by RBI to reduce volatility in the overnight lending rates in the inter-bank market and to enable smooth monetary transmission in the financial system.
• Under MSF, banks can borrow funds overnight up to 1% (100 basis points) of their net demand and time liabilities (NDTL) i.e. 1% of the aggregate deposits and other liabilities of the banks. NDTL liabilities represent a bank’s deposits and borrowings from others.
• In a move to stem the continuing fall of rupee, the RBI raised the MSF rate to 300 basis points (i.e. 3%) above the repo rate in July 2013. Thus, both rate of borrowing and percent of borrowing allowed under MSF can be varied by RBI.
•  Introduction of MSF The RBI had introduced the marginal standing facility (MSF) in its Monetary Policy (2011-12). MSF came into effect on from May 9, 2011. Banks used the facility for the first time in June 2011 and borrowed Rs.1 billion via the MSF.
• Does a hike in MSF rate affect us? Hiking MSF rate makes borrowing expensive for a bank which means loans become expensive for individual and corporate borrowers and this in turn translates to lesser availability of the rupee. RBI uses MSF and other measures to control money supply in the financial system. MSF rate hike is being done to control excess availability of the rupee and to control its depreciation with respect to the dollar.
•  Borrowing under MSF Banks can borrow through MSF on all working days except Saturdays, between 3:30pm and 4:30pm in Mumbai where RBI has its headquarters. The minimum amount which can be accessed through MSF is Rs. 1 crore and in multiples of Rs. 1 crore. The application for the facility can be submitted electronically also by the eligible scheduled commercial banks.
• While referring to women in live-in relationships, a Bench of the State Human Rights Commission of Rajasthan said on September 5 that the “concubine” life of a woman cannot be termed a dignified life. In the absence of any specific reference in the order to the complaints that triggered these provocative comments, it is difficult to say what the honourable justices sought to achieve by making them. The kindest interpretation would be that they were overcome by benevolent patriarchy, the kind which prompts universities to have more conservative curfews for female students. However, this seemingly innocuous need to ‘protect’ women is a symptom of a more pernicious disease: the need to ensure that women don’t challenge the patriarchal structures and institutions meant to keep them in their place.

The rights of parties who cohabit

• In demanding a law that would provide avenues to formally recognize live-in relationships, the Bench touched upon an important legal issue. The Protection of Women from Domestic Violence Act, 2005, extends remedies in the legislation to ‘relationships in the nature of marriage’, and courts have repeatedly held that long, continuous cohabitation raises a presumption in favour of marriage.
• Notwithstanding this, there is a legal vacuum as regards the rights of parties who cohabit. The Supreme Court has passed several landmark judgments on intimate relationships. In Shafin Jahan v. Asokan (2018), it held that the right to choose one’s life partner is an important facet of the right to life, and social approval of intimate personal decisions should not be the basis for recognizing them.
• In Navtej Johar v. Union of India (2018), it read down Section 377 of the IPC which criminalized consensual homosexual relationships. In light of this, it is important to note that being in a live-in relationship is a valid choice which deserves the recognition and protection of law. That said, there may also be those who cohabit informally because they cannot formalize their relationships, such as inter-caste/religion opposite-sex couples who are barred from marrying by social norms, or same-sex couples, who are barred from marrying by law.
• Informal cohabitation, like marriage, creates vulnerabilities due to divisions of labour that leave one party, usually the woman and her child, in greater need of financial support when the relationship ends. The law provides ways to address these vulnerabilities in marriages through the provision of rights to maintenance or inheritance, but the needs of informal cohabitants are left up to the discretion of judges, without any legal framework to guide them.
• However, it is not for these reasons that the SHRC has demanded the law. The real apprehension of the Bench is the alleged proliferation of live-in relationships, a social institution through which sexual freedom can be exercised outside marriage.

Problematic proclamations

• The SHRC’s order is problematic on many levels. One, Article 19 of the Constitution, which protects the right to freedom of speech and expression, includes the freedom to express one’s identity, sexual preferences, and love. The right to life and personal liberty under Article 21 includes the right to privacy. The right to choose how to organize one’s personal intimacies is an important facet of the right to privacy and, therefore, outside the purview of the state. Demanding that the government seek to prohibit live-in relationships is therefore brazen contempt of the decisions of the apex court.
• Two, the language of the SHRC promotes sexist and heteronormative stereotypes, and ignores social reality. At one level, in stating that women in live-in relationships are ‘kept’ as concubines, it ignores the possibility that such relationships could be a viable alternative in cases where marriage is legally or socially prohibited. It also assumes that marriage is, or ought to be, the only relationship through which women sexually associate with men. At another level, by equating women who cohabit with concubines, it entrenches the patriarchal Madonna-whore dichotomy: women can either be good women who abide by the societal boundaries set for them or bad women who dare transgress these boundaries. The fact that this language was used by a body tasked with protecting and upholding human rights makes the proclamations doubly egregious.
• Finally, the language in the order will likely create a chilling effect, preventing vulnerable citizens, in need of legal protection, from seeking redress.
• The SHRC also demanded that governments run awareness campaigns against live-in relationships. It is worth considering whether that time and money might be better spent in campaigns to sensitise the functionaries of the justice system instead.

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