Surprised by myself.

This is one of the very few instances when I got utterly surprised by myself. Bowing down to peer pressure (Great Lakers are bringing home lots and lots of prizes), I also wanted to participate in at least one of the competitions.

The below write-up is for one such competition conducted by IIFT. I just got internally motivated to give my best to it. So, I spent a solid 6-7 hours on the net and a few hours on the newspapers and came up with this. It is a collection of information from so many sites on the net. I couldn't mention most of them in the references.

At last, when I completed it and did a proof-reading I was really amazed. Did I really write this? Never ever I realized that I was able to pull this one about banks and stuff. Well, thanks to the peer pressure and the basic economics from Dr. Rakesh Singh, here I am. And yeah, this one didn't win any prize. But, does it matter? :-)



RBI’S DUAL ROLE -- WAY TO GO OR A CASE TO METAMORPHOSE




Institute : Great Lakes Institute of Management, Chennai
Team Name : HereItIs
Participant : Sivakumar T
E-mail Id : sivakumar.thiyagarajan@greatlakes.edu.in; siva.storyteller@gmail.com
Contact no : +919840132998





RBI’S DUAL ROLE – WAY TO GO OR A CASE TO METAMORPHOSE

Setting the pace...

Ever since Reserve Bank of India (RBI) was set up in 1935 through the provision of Reserve Bank of India Act 1934, the role of this central bank has been gaining monumental importance. The bank plays a very crucial part in shaping up of the Indian economy.

Initially, RBI was supposed to perform three important functions through its departments - Banking, Issue and Agricultural Credit. Acting as a banker to the Government of India (GoI), Issuing currency notes and lending credit to farmers. Fast forward to 2009 – RBI is not only handling 26 different functions but also advises the Government on a wide range of economic issues including those in the field of planning and resource mobilization.

Apart from playing a decisive role in the economic policies of the country, RBI also contributes significantly to the international community by playing important roles in Bank for International Settlements (BIS), Committee on Global Financial System, the Markets Committee, and the International Liaison Group under the aegis of the Basel Committee on Banking Supervision (BCBS).

Having made the point, the RBI success story is not without hitches. To handle the responsibility of managing the monetary situation in the fourth largest economy in the world is not an easy task. Conflicts of interest are bound to occur. One such conflict is what this paper is trying to address.

What’s the conflict?!

The preamble to the Reserve Bank of India Act , 1934 (which set up the RBI) says that the purpose of RBI is “to regulate issue of Bank notes, to keep the reserves with a view to securing monetary stability in India and generally to operate the currency and credit system of the country to its advantage”.

Compare it with the following functions which RBI performs now.
(a) Issuer of currency notes
(b) Monetary authority
(c) Manager of Foreign Exchange reserves
(d) Regulator and supervisor of banks and Non-banking financial companies (NBFCs)
(e) Manager of the capital account of the Balance of payments
(f) Debt manager for central and state governments
(g) Manage the bank customer’s grievance redressal scheme

Many other functions are not listed on account of triviality. It is worthwhile to note that RBI as a central bank has been modelled on the basis of Bank of England.
RBI sets short-term interest rates, trades on the currency market, raises money for the government, regulates banks and NBFCs, regulates fixed income markets and runs the bond market. Clearly, most of these functions conflict with each other. The conflict of interest in its role as the banker to the government and the setter of interest rates is the most prominent conflict of all.

To function as an efficient debt manager and raise money for the government, RBI has to keep the interest rates low and hence, minimize borrowing costs. This would result in the increase in the sale of bonds and hence, more money to the government. On the other hand, lowered interest rates would imply rising inflation. This would warrant the interference of the monetary policy management arm of RBI, which on account of maintaining a tight monetary policy raises the interest rates.

Debt Management Office (DMO)

So, will separating the Debt management arm from the RBI solve the problem? This is the question to be addressed.

The latest announcement 7 (14th July 2009) of GoI is to create an independent office for debt management and thus divest RBI of this duty. The finance ministry had proposed a bill to setup a Debt Management Office (DMO) which would function independent of the finance ministry and the RBI. This Office will decide the amount of bonds to be floated each year, the coupon price, the tenor of the papers and their periodicity. Countries such as UK, US, Brazil, Sweden and Portugal already have separated Debt management from the purview of their central banks. In US, debt management is handled by the Treasury department while the monetary policy is dealt with by the Federal Reserve Bank.


All said and done, will this work?

There are two sides to constituting a separate Debt Management Office (DMO). Let us hear what the advocates of DMO have to say.

They claim that,

(a) This move will remove the conflict of interest in RBI’s role as a banker to GoI and as a setter of interest rates. Obviously!

(b) Being a regulator of Banks, RBI – responsible for selling bonds – indirectly forces the banks to buy government bonds. This, in turn, hurts the banks’ financial structure.

(c) Few economists say that given the size of debt issuance (Debt to GDP ratio of 90 percent) in this country, setting up of DMO is natural.

(d) By having a separate DMO, we could arrive at a full database of all the liabilities of GoI and thus can be used for risk management and optimization of the financial burden of the government.

(e) DMO will provide RBI the autonomy for inflation control regardless of the Government’s fiscal policy.

(f) With both Debt management and monetary control at its armoury, RBI can even act as an impediment to the development of a vibrant bond market. For example, market is bound to guess whether an interest rate cut or a reduction in CRR is a signal of higher government borrowings. Government borrowings should not influence the monetary action or the vice versa.

Then, where’s the problem?

Few economists and former RBI officials such as Rakesh Mohan claim the following as reasons against setting up of DMO

(a) With the demands of the government’s net borrowing programme set at Rs 3,97,957 crore this fiscal (around 6% of GDP) , which is 52% more than in 2008-09, this is not the right time to separate Debt Management from RBI. In fact, the then Finance Minister Yashwanth Sinha and the then RBI Governor Y.V.Reddy had acquiesced to set aside DMO unless fiscal deficit was reduced. Economic Advisory Council (EAC) had projected a fiscal deficit of 6.8% of the GDP in the current fiscal even after achieving the current Fiscal Responsibility and Budget Management (FRBM) targets. So, with such a large fiscal deficit, there is a need for consistency in fiscal and monetary management which can be achieved by RBI alone.

(b) Technically, Interest rates and monetary control are still intertwined. Statutory Liquidity ratio (SLR) which is an important parameter in the functioning of the bank will be higher unless the fiscal deficit is reduced. SLR is a monetary policy instrument and it ensures participation of banks in the Government Securities (G-Secs) market. So, debt management, bank regulation and monetary control remain intertwined.

(c) Suppose RBI cedes control of DMO, this might result in increased political and governmental interference in the affairs which RBI clearly doesn’t want.

(d) Synchronising debt issuance and foreign exchange intervention in a situation of volatile capital flows will be a problem if the Debt management is separated from RBI.

(e) By moving the DMO under the purview of the Finance ministry, there would be a conflict between Government’s role as a debt manager and as an owner of a majority of banks. The ministry can then force the PSU banks to buy G-Secs in auctions and thus distort the microstructure of the government securities. Though it has been argued that with ever decreasing global interest rates, higher yield of G-securities is anyways attractive, it is important to note that the Tarapore committee had recommended privatization of banks before setting up of a DMO.

(f) RBI’s role in developing G-secs by coordinating through both institutional and market development activities including diversification of debt instruments, development of derivatives and widening of the investor base is still required.

(g) In consequence to the Twelfth finance commission, RBI is the debt manager for State Governments also. As the issuance of State Debt has increased, separating the RBI from Debt management complicates the problem as synchronising state and central borrowing will be difficult

So, what’s finally?

There are both upsides and downsides to the setting up of a DMO. Though the argument against setting up looks strong, it must be noted that those people never wrote down the efficacy of a DMO. They have just mentioned about the gross inadequacies in the system and timing of the setting up of DMO as pain areas. If US, which has a fiscal deficit of about 12.8% of GDP has set up a DMO, India must also take steps towards that direction. Yes. Fiscal Deficit is a problem. But, at some point of time, we would need a separate entity to handle this conflict of interest. A committee, headed by an independent secretary, must be formed to facilitate the dialogue between the Government and RBI to sort out issues from both sides and come up with a detailed plan of setting up a Debt management Office. Instead of pitching against each other, why not start solving the problem?

References

1. Book - Analysing Macro Economics – Dr. Rakesh P.Singh

2. Y.V.Reddy Speech - http://rbidocs.rbi.org.in/rdocs/Speeches/PDFs/81026.pdf

3. Article - Role of RBI in Indian Economy – Sachin Nanda

4. Panel Discussion on 'Challenges for the Central Banks' organised at Hyderabad
on as part of RBI's Platinum Jubilee Celebration - http://www.rbi.org.in/SCRIPTs/BS_SpeechesView.aspx?Id=433

5. The Fourth L.K. Jha Memorial Lecture by William J. McDonough, President, Federal Reserve Bank of New York, Mumbai, India, on December 5, 1996 - http://www.rbi.org.in/scripts/PublicationsView.aspx?Id=7321

6. Platinum Jubilee Celebrations - Governor’s Address to Staff
(Duvvuri Subbarao, Governor) - http://www.rbi.org.in/scripts/BS_SpeechesView.aspx?Id=416

7. Article – Building a better credit policy speech – Ajay Shah - http://www.mayin.org/ajayshah/MEDIA/2009/rbi_transparency.html

8. Financial Express - http://www.financialexpress.com/news/rbi-tells-centre-to-shelve-dmo/492418/2

9. ET - http://economictimes.indiatimes.com/Opinion/Policy/Is-India-ready-for-debt-management-office/articleshow/4879578.cms?curpg=1

10. The Hindu Business Line - http://www.thehindubusinessline.com/2009/08/27/stories/2009082750290800.htm

11. Business Standard - http://www.business-standard.com/india/news/finmin-workingnew-debt-management-office/20/45/367927/

12. Rediff news - http://www.rediff.com/money/2007/mar/01bud4.htm

Director as an audience.

I always thought of a certain concept to make as a movie. Once I even shared it with my close friend Partha. It's about a Director who changes after he makes a movie. I didn't decide on what all changes he faced. But what I thought of was that the Director moved from a mental state 'A' to a mental state 'B' after he makes a movie.

But why this idea? I don't know when it struck me. But it surely must have touched my chord some where while watching a particular moment in a cinema hall. Most of my ideas/thoughts get shaped in cinema halls. When I watch a movie, unlike many others, I do not concentrate 100% on the movie as such. Unless and until it is a DAMN good movie (which many not are), I don't even care about the intricate aspects of film making. Sometimes, I do see myself standing/sitting behind the camera. But that's very rare. Most of the time, I am in my own world. Unknowingly, I put myself in the shoes of one of the myriad characters on the screen. I am not sure how many of you remember this now. When the Luka Chupi song's second stanza starts in the movie Rang De Basanti, I was in the shoes of the IAF officer who brought the body of Ajay Rathod. How must have he felt?

This is the only REASON I love watching movies. It takes me to an emotional high. No other art form ever did it to me. That's THE reason for me to watch movies alone. I want to get involved.

Okay. Where was I? Yeah. One moment, a particular idea struck me. If , I - as just an audience - feels so much about watching a movie, how about the maker himself? What kind of emotional 'things' he'd face? It'd be unexplainable. This formed the basis of the movie I thought of. A Director who has a certain mental frame of mind before making a movie changes his frame of thought as and when he sees the characters evolving before him. He sees himself in those characters and as and when the movie progresses, his thinking changes and by the time the movie gets over. Boom! He is a totally different person.

Ah! Didn't I like telling this? But you know what? I forgot about this long time back. Now, after reading this - I must say - I was surprised to say the least.

Read it for yourself - RGV's Blog

Where is my audience?

Hell. Yeah. I miss CHN INK (Literary forum in Infosys).

It's been around 6 months since I left Infy and apart from the paycheck and a few friends, the thing I miss about Infy is the Literary forum there. I started writing stuff after visiting INK. People used to comment (both good and bad). I had a life there. I loved writing there. The anxiety of waiting for the responses after I post it. I seriously miss it. Though I'd like to point 'lack of time' as the reason for me not writing anything 'concrete' after Apr'09, the actual reason I think is 'Lack of audience'. There were days when I used to start writing after 7.30 PM (After work and gym). Of course, I am not that busy these days. I do have sufficient amount of time. But yeah, some thing is stopping me. May be, I am looking ahead. I am thinking of making movie these days. I've started thinking visually. Lengthy stories don't interest me that much. And yeah, I've started reading literature. I don't know how I got interested in that. But all of a sudden, I am reading and buying books on Hemingway and stuff. May be, this is the time of metamorphosis. I really don't know what's in store for me.

One thing I know is that there's a very rare chance I'd get back to Infy. And it scares me.

Early morning musings on a "Deepavali"

I'd never hav thought of sitting on a deepavali morning with a laptop. But, I just got totally sickened of seeing all these reviews about Peraanmai.

I am writing this blog just to say "Peraanmai is worth watching in theaters". It
s one of the better ways to spend your 100 bugs and 3 hours of your time. I
m not going to talk about the technical aspects coz, it's Deepavali today!!! The smell of the crackers outside lure me like anything. I, seriously, have to go.

So, bye for now and remember the thing I said about 100 rupees and 3 hours.

Health camp successful.

The evening before the camp was held, we went around the streets of Pandur village distrbuting pamphlets about the health camp on the next day. On one of the "3 meters breadth" cement road at around 6.30 pm, I stood outside a hut and called out "Amma...". A very old woman came towards me with her palm over the eyebrows. I explained why we have come there. All of a sudden, her face changed - as if looking deep into my eyes - and said "Nee en peran maathiri irukapa... Enaku yaarum illa... En peran Madras-la padikiran... Unna maathiri thaan irupaan" (You look like my grandson who is studying in Madras. He is the only one I have..)

I didn't know how to react and said over a choked throat "Kandippa vanthudunga... Doctor paathupaar" (Do come tomorrow. Doctor will take care.)

Guess, I was alive on that day just to witness that.

P.S: Here are some of the pics taken in camp. I couldn't surpress the "other Siva" of mine who gets haywire whenever a camera is given to him. Thanks to Shriman's D80, some of them came out satisfactorily.

Karma Yoga Medical Camp tomorrow

Hope tomorrow's medical camp at Pandur Village goes fine. Wish us luck!

Meanwhile, found some interesting blogs. I've been visiting these sites for quite some time and I must confess they are quite good. Not sure whether you'll find them interesting.
The ET guy; Harvard Economist ;
Nobel laureate

Not surprising all these are economics blogs. Ever since our Economics Prof Rakesh Singh gave that inimitable lecture on that Thursday morning 2 months back, I am in love with this subject.

Review of my reactions after "Eeram"

Long time I wrote "review of my reactions" after watching a movie. I am real glad that "Eeram" happened to be the one to restart this series.

First things first. Go watch it. I simply don't want to weave words around to say how good the movie is. Let me not waste time by telling how good the story is; how innovative the cinematography is; how good the characters are.

No.

I also don't want to make big statements such as "The best thamizh thriller movie ever", simply becuase I haven't watched enough thamizh thriller movies. Generally I dont watch thriller movies in any language. So, I really don't know whether it was a rip-off from any foreign language stuff.

But, it is important from my part to confess that I derived real pleasure from watching this stuff and I am extremely proud of THAMIZH CINEMA for the sheer diversity of films it gives us. One hand, we have a "moderately made" Kanthaswamy and in the other hand we have this flick.

It's high time, we start going to Bombay and Calcutta and start dubbing and selling movies like "Eeram". Time for us to go global. And what better way than to enter Bombay first.

Director Shankar - Man, I am real jealous of this guy. He makes movies he likes and produces movies he wants to associate himself with. What more a guy can want from his life?

I have already started googling "Arivalagan" - and he automatically adds himself to the list of Vetrimaaran and Sasikumar - Thamizh cinema's next gen Directors and probably the ones I might compete with in later part of their careers.

"Actors were good" would be a crass understatement. I think this was the first time "The top angle Anna Flyover shot" (which would be usually shown in all movies) was shot during rainy season. I really loved every bit of camera work of Manoj.

For a long time, I had been talking about the impact of graphics in tamil cinema. And I was real glad to see that we've evolved from using "Kadhalan-like" graphics usage to usage in plot-based movies.

The intermission scene, which was the best scene of the movie according to me, is a perfect example.

Let me say once again what I've been saying for the past 3 hours after watching the movie.

AWESOME