Rajan warns against ‘Appellate Raj’

‘We need checks and balance, but we should ensure a balance of checks’

Updated - April 02, 2016 05:29 am IST

Published - February 20, 2015 10:59 pm IST - PANAJI

Reserve Bank of India (RBI) governor Raghuram Rajan. Photo: Paul Noronha

Reserve Bank of India (RBI) governor Raghuram Rajan. Photo: Paul Noronha

In a veiled attack on suggestions made by the government-appointed Financial Sector Legislative Reforms Commission (FSLRC) panel for overhaul of financial sector laws, Reserve Bank of India Governor Raghuram Rajan, on Friday, said the country should not end up in ‘Appellate Raj’ after escaping the ‘License Permit Raj.’

The comments assume significance in the wake of the high-profile FSLRC having suggested creating a single appellate authority for all financial sector watchdogs, including the RBI.

The proposal, which was aimed at providing checks and balances for decisions made by the regulators, has been hanging fire for a long time due to opposition from various quarters, including the RBI.

“We need checks and balance, but we should ensure a balance of checks. We cannot have escaped the License Permit Raj only to end up in the Appellate Raj!,” Dr. Rajan said at an event here.

While he did not make any direct reference to the FSLRC or its suggestions, the RBI Governor said: “If we create a multiple appellate process against the government or regulatory action that is slow and undiscriminating, we contain government access but also risk halting necessary government actions.

“If the government or the regulator is less effective in preparing its case than private parties, we ensure that the appellate process largely biases justice towards those who have the resources to use it, rather than rectifying the miscarriage of justice,” he said.

Strong accountability

Observing that the democratic accountability is strong in India, he said “We may have a long way to go ... (as far as) the capacity of the government, by this I mean regulators like the RBI also, to deliver governance and public services.” Dr. Rajan further said that in thinking of reforms, the country needed to move from theoretical idea of how a system might work in a country with enormous administrative capacity to how it will work in actual Indian situation.

India, Dr. Rajan said, needed to choose “a happy medium between giving the administration unchecked power and creating complete paralysis.”

The economic inclusion, he said, should mean easing access to quality education, nutrition, healthcare, finance and markets to all citizens for ensuring sustainable growth.

Dr. Rajan said a strong government should be led by those who have expertise, motivation and integrity and can provide the needed public goods. He also warned that strong governments might not always move in the right direction.

“Hitler provided Germany with an extremely effective administration — the trains ran on time, as did the trains during our own Emergency in 1975-77. His was a strong government, but Hitler took Germany efficiently and determinedly on a path to ruin, overriding the rule of law and dispensing with elections.”

“It is not sufficient that the trains run on time, they have to go in the right direction at the desired time,” he said.

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