John Lanchester

Does It Really Make Sense to Merge Public Sector Banks?

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The government of India owns twenty-seven public sector banks(PSBs). It has often been suggested that the government should not be owning so many banks. Many of these banks are very small and hence, they should be merged so that they benefit from the economies of scale.

The situation was summarised by R Gandhi, deputy governor of the Reserve Bank of India, in a recent speech. As he said: “[The] banking system continues to be dominated by Public Sector Banks (PSBs) which still have more than 70 per cent market share of the banking system assets. At present there are 27 PSBs with varying sizes. State Bank of India, the largest bank, has balance sheet size which is roughly 17 times the size of smallest public sector bank.”

Gandhi further said: “Most PSBs follow roughly similar business models and many of them are also competing with each other in most market segments they are active in. Further, PSBs have broadly similar organisational structure and human resource policies. It has been argued that India has too many PSBs with similar characteristics and a consolidation among PSBs can result in reaping rich benefits of economies of scale and scope.”

The first thing that needs to be mentioned here is that most mergers fail. There is enough research going around to prove that. As the Harvard Business Review article titled The Big Idea: The New M&A Playbook points out: “Companies spend more than $2 trillion on acquisitions every year. Yet study after study puts the failure rate of mergers and acquisitions somewhere between 70% and 90%.”

Hence, it is safe to say that most mergers fail and it is best to start with this assumption when any merger is proposed. And there is no reason to believe that the story for Indian public sector banks will be any different.

There have been two kinds of bank mergers in India. The first kind is when a bank which is about to fail is merged with a strong bank. The Sector 45 of the Banking Regulation Act 1949 empowers the RBI to “make a scheme of amalgamation of a bank with another bank if it is in the depositors’ interest or in the interest of overall banking system.”

The merger of Global Trust Bank with Oriental Bank of Commerce in 2004 is a good example of this. As Gandhi said in his speech: “Prior to 1999, most of the mergers were driven by resolution of weak banks under Section 45 of Banking Regulation Act 1949. However, after 1999, there has been increasing trend of voluntary mergers under Section 44A of Banking Regulation Act 1949.”

The second kind of merger is the voluntary merger. As far as voluntary mergers go, a good example is the recent merger of ING Vysya Bank with Kotak Mahindra Bank. This merger had the so called synergy necessary for a merger to take place.

As Gandhi said: “One and most obvious has been voluntary merger of banks driven by the need for synergy, growth and operational efficiency in operations. Recent merger of ING Vysya Bank with Kotak Mahindra Bank is an example of this kind of consolidation. ING Vysya Bank had a stronger presence in South India while Kotak had an extended franchise in the West and North India. The merger created a large financial institution with a pan-India presence.”

The merger of Bank of Madura and Sangli Bank with ICICI Bank in 2001 and 2007, and the merger of Centurion Bank of Punjab by HDFC Bank in 2008, are other good examples of synergy based mergers.

But what does the word synergy really mean? One of former professors used to say that: “Since we are all born on this mother earth, there is some sort of synergy between us.” That was his way of saying that synergy is basically bullshit. Once a merger has been decided on then people go looking for reasons to justify it and that is synergy. While that may be a very cynical way of looking at things, there is some truth in it as well.

Nevertheless, author John Lanchester does define synergy in his book How to Speak Money. As he writes: “Synergy: Mainly BULLSHIT, but when it does mean anything it means merging two companies together and taking the opportunity to sack people.” He then goes on to explain the concept through an example.

As he writes “If two companies that make similar products merge, they will have a similar warehouse and delivery operations, so one of the two sets of employees will lose their jobs. The idea is that this will cut COSTS and increase profits, though that tends not to happen, and it is a proven fact that most mergers end by costing money…When two companies merge, the first thing that ANALYSTS look at when evaluating the deal is how many jobs have been lost: the higher the number, the better. That’s synergy.”

If two public sector banks are merged there are bound to be situations where both the banks have a presence in a given area. Synergy will demand that one of the branches be shut down. But given that the banks are government owned something like that is unlikely to happen.

Over and above this, there will be multiple people with the same skill at the corporate level. Will this duplicity of roles end, with people being fired? Highly unlikely.

Hence, the merger of two public sector banks, will give us a bigger inefficient bank. Further, there are very few examples of public sector banks being merged in the past.  So, there is nothing really to learn from.

As Gandhi said: “Recent merger of State Bank of Saurashtra and State Bank of Indore into State Bank of India may be seen as basically merger among group companies. The only example of merger of two PSBs is merger of New Bank of India with Punjab National Bank in 1993. However, this was not a voluntary merger.”

Also, it is worth remembering that public sector banks are facing huge bad loan problems. Many corporates who had taken on loans are not repaying them. In this scenario, if banks are merged without the bad loan problem being solved, we will have a situation where problems of two banks are basically passed on to one bank. That doesn’t make the situation any better.

As Gandhi summarises the situation: “PSBs as a group have not been performing well during the last few years. There has been a large increase in Non-Performing Assets (NPAs). As a part of managing large NPAs, some suggestions have been made that perhaps a consolidation of PSBs can render them more capable of managing such challenges relatively better…Merger of a weak bank with a strong bank may make combined entity weak if the merger process is not handled properly. The problems of capital shortages and higher NPAs may get transmitted to stronger bank due to unduly haste or a mechanical merger process.”

The column originally appeared on the Vivek Kaul Diary on April 27, 2016

The Income of the Average Indian is Significantly Lower Than the Average Income of India

ARTS RAJAN

The speeches made by the Reserve Bank of India(RBI) governor, Raghuram Rajan, are always a pleasure to read. In his latest speech made on April 20, 2016, Rajan said: “India is the fastest growing large country in the world, though with manufacturing capacity utilization low at 70% and agricultural growth slow following two bad monsoons, our potential is undoubtedly higher. Growth, however, is just one measure of performance. The level of per capita GDP is also important. We are still one of the poorest large countries in the world on a per capita basis, and have a long way to go before we reasonably address the concerns of each one of our citizens.”

Rajan further said: “We are often compared with China. But the Chinese economy, which was smaller than ours in the 1960s, is now five times our size at market exchange rates. The average Chinese citizen is over four times richer than the average Indian. The sobering thought is we have a long way to go before we can claim we have arrived.”

The point that Rajan was trying to make was that: “As a central banker who has to be pragmatic, I cannot get euphoric if India is the fastest growing large economy…The central and state governments have been creating a platform for strong and sustainable growth, and I am confident the payoffs are on their way, but until we have stayed on this path for some time, I remain cautious.”

This was essentially a retort to politicians who keep tom-tomming India’s dodgy economic growth numbers. While Rajan did not say that he does not believe in the economic growth numbers, he did try and make it clear that if India needs to reach anywhere, it needs strong and sustainable economic growth in the years to come. And achieving that is easier said than done.

Further, Rajan also made a more important point in his speech about India’s low per capita income. What is per capita income? John Lanchester defines per capita income in his book How To Speak Money as: “The total Gross Domestic Product(GDP) of a country divided by the number of people in the country.

As he further writes: “It is a measure of how rich the country’s citizens are on average – though it is a very rough measure of that, since a country’s WEALTH is often very unevenly distributed.”

The phrase to mark in the above paragraph is on average. The question is does an average always represent the right scenario? As Robert H Frank writes in Success and Luck—Good Fortune and the Myth of Meritocracy: “It is of course possible for most people to have a trait the measures higher than the corresponding mean value for the population to which they belong. Since a small number of people have fewer than two legs and no one has more, for instance, the average number of legs in any population is slightly less than two. So most people actually do have “more legs than average”.”

How does the above paragraph apply in the context of the GDP? What it tells us is that the average income of India is not equal to the income of the average Indian. Now what does that actually mean?

Let me explain that through an example. Let’s say on a given day in the city of Mumbai, an Ambani, an Adnani, a Birla and a Tata, walk into a local Udupi restaurant in Matunga. The restaurant is known for its soft idlis and fabulous coffee. And this has attracted the four industrialists to this small place.

The moment these four walk into the restaurant, the average income of the people seated in the restaurant goes up by leaps and bounds. If I may rephrase the last sentence, the per capita income of the restaurant goes up leaps and bounds, when the four industrialists walk into the Udupi restaurant.

But this increase in per capita income of the restaurant will have no impact on the incomes of the other people seated in the restaurant. (This example is essentially an adaptation of an example Charles Wheelan uses in his book Naked Statistics).

As Charles Wheelan writes in Naked Statistics: “The mean, or average, turns out to have some problems in that regard, namely, that it is prone to distortion by “outliers”, which are observations farther from the center.”

So basically, the Ambanis, Adnanis, Birlas and Tatas, of the world, essentially India’s rich, push up the average income of India i.e. the per capita income. As Wheelan writes: “The average income…could be heavily skewed by the megarich.”

In this scenario, the average income does not give us a correct picture. Further, it is safe to say, that the income of the average Indian is lower than the average income of India.

At this point it is important to introduce another term i.e. the median. As Wheelan writes: “The median is the point that divides a distribution in half, meaning that half of the observation lie above the median and half lie below.”

Hence, the median income is the income of the average Indian. Given this, the median income is the right representation of the income of the average Indian. This is because the rich outliers (the Ambanis, the Adnanis, the Tatas and the Birlas) are taken into account. Data from World Bank shows that the top 10% of India’s population makes 30% of the total income. And this pushes up the per capita income.

The trouble is that it is not so easy to find median income data in the Indian context. A survey carried out by Gallup in December 2013, put India’s median income at $616. Data from the World Bank shows that India’s per capita income during the same year was $1455.
Hence, the median income was around 58% lower than the average income or the per capita income. And that is not a good sign at all.

This shows the tremendous amount of inequality prevalent in the country. The difference in the income of the average Indian and the average income of India is thus huge. In fact, I had written about this inequality in the column published on April 19.

In 2015-2016, the average income of those not working in agriculture was 4.9 times those working in agriculture (using GDP at current prices). If we were to use GDP at constant prices (at 2011-2012 prices), the ratio comes to 5.5. Constant prices essentially adjust for inflation.

And this is really a big worry!

The column originally appeared on the Vivek Kaul’s Diary on April 25, 2016

Finally, an Economist Explains Why the Indian GDP Growth Number Is Wrong


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I was just joking to a friend the other day that if economists started writing their stuff in simple English, which everybody can understand, guys like me who make a living out of translating what economists think and write, into simple English, would be driven out of the business very quickly.

The question is why do economists write the way they do? As John Lanchester writes in How to Speak Money: “As your vocabulary becomes more specific, more useful, more effective, it also becomes more exclusive. You are talking to a smaller audience…There are a lot of things like that in the world of money, where the explanation is hard to hold on to because it compresses a whole sequence of explanations into a phrase, or even just into a single word.” This is precisely what happens when economists write, or talk for that matter.

Nevertheless, given the chances of economists writing in simple English are low, I guess I am likely to continue to be in business.

Moving forward, in this piece I wanted to look at a column which was recently published in the Mint newspaper. The column is titled Real GDP is growing at 5%, not 7.1% and has been written by economist Rajeswari Sengupta.

I think the column makes a very important point. Nevertheless, my only quibble with it is that it has not been written in simple English. An idea as important as this column communicates needs to reach a wider audience and not just other economists.

So what is the core idea of the Mint column? As Sengupta writes: “Are our gross domestic product (GDP) numbers credible? Many commentators have expressed their doubts. But no one has yet identified problems with the Central Statistical Organisation’s (CSO) methodology. This is because they have been looking in the wrong place.”

Sengupta essentially goes on to explain what is wrong with the Indian GDP growth numbers.

In January 2015, the CSO moved to a new way of calculating the GDP. The GDP is a measure of all goods and services produced within a country. It is a measure of the economic size of any country. And GDP growth is essentially a measure of economic growth.

After the CSO last January unveiled the new way of calculating the GDP, the Indian GDP numbers suddenly started to look better. The GDP growth as per the old method had stood at around 5%. With the new method, the GDP growth suddenly crossed 7%.

The CSO estimates that in 2015-2016 (the current financial year) the Indian economy is likely to grow at the rate of 7.6%. It is important to understand that the GDP is a theoretical construct. There are many high frequency economic data indicators which tell us very clearly that there is no way that the country is growing at the rate at which the CSO wants us to believe it is.

Exports are down. Two wheeler sales growth has been fairly insipid. Railway freight growth has been very slow. Bad loans of banks are rising at a fairly rapid rate and their lending growth has been very slow. Corporate earnings growth has been terrible.

Given these reasons, how can the GDP possibly grow at 7.6% during this financial year, is a question worth asking.

Sengupta in her column explains what is wrong with the GDP growth number of 7.6%. As she writes: “The problem is not, as many have suspected, in the nominal numbers. It lies in the system for constructing the deflators. This methodology is flawed, yielding exaggerated estimates of the speed at which the economy is growing.”

Let me explain this mumbo jumbo in simple English. The GDP growth number of 7.6% is essentially what economists call the real GDP growth. The real GDP growth is essentially GDP growth which has been adjusted for inflation. The nominal GDP is the GDP growth which hasn’t been adjusted for inflation.

Hence, real GDP growth is essentially nominal GDP growth minus the prevailing rate of inflation. So far so good.

Now Sengupta talks about something known as a deflator in her column. What is a deflator? Lanchester defines a deflator in his book as “the number you use when working out the value of money minus the effect of inflation.”

In Sengupta’s case, she is talking about what economists refer to as the GDP deflator, which is nothing but the rate of inflation used to come up with the real GDP growth number from the nominal GDP growth number.

The real GDP growth number is essentially the nominal GDP growth number minus the GDP deflator. Let’s understand this through an example. Let’s say the nominal GDP growth is 10%. The GDP deflator is at 3%. Then the real GDP growth is 7% (10% minus 3%). If the GDP deflator is 1%, then the real GDP growth is 9% (10% minus 1%). That is how it works

What is the problem with the GDP growth number? As Sengupta puts it: “The real numbers are derived by taking nominal data on the economy and deflating them by price indices. So, if inflation is understated, then real growth is going to be overstated. And this is what has been happening.”

Hence, the CSO seems to be using a lower GDP deflator to arrive at the real GDP growth number. This has led to a higher real GDP growth number, which seems unreal.

And this is precisely where the problem lies. If we look at the nominal growth number for the period October to December 2015, it stands at 7.9%. A deflator of 0.7% meant that the real growth came in at 7.1%. (The number should be 7.2% if we follow what I explained earlier, but there must be some rounding off errors here).

Sengupta’s contention is that the CSO is understating the GDP deflator at 0.7% and the number should be higher than this. As she writes: “Could India’s inflation be so low? In effect, the CSO is saying that despite India’s booming economy, producer inflation is lower than that of the recession-wracked economies of the West, or even that of Japan, which has been wrestling with deflation since the 1990s.”

This underestimation is happening primarily because the calculation of the GDP deflator closely tracks the inflation as measured by the wholesale price index, which has been in negative territory for some time now (16 months to be precise).

This explains why CSO feels that the Indian economic growth in 2015-2016 will be at 7.6%, even though the high speed economic indicators indicate otherwise. Sengupta shows that by using the right GDP deflator, the real GDP growth cannot be possibly more than 5%. And that is precisely the point I have been making over the last few months.

The column originally appeared on The 5 Minute Wrapup on Equitymaster on March 18, 2016

Demographic dividend – The biggest risk to the India growth story

indian rupeesIn an interview last week I was asked what is the biggest risk to the India growth story. The term India growth story made me think about a period ten years back when I was just starting up in business journalism as a personal finance journalist.

Back then, every fund manager I met said the same thing—the India growth story is still intact. But no one ever bothered to explain what the India growth story actually was. In fact, for a while I even thought that the fund managers were talking in some sort of a code.

As John Lanchester writes in How to Speak Money: “Practitioners of almost every metier [profession], from plumbers to chefs to nurses to teachers to police, have a gap between the way they talk to each other and the way they talk to their customers or audience.”

Over a period of time I realised that it was much more than that. As Lanchester writes: “There are a lot of things…in the world of money, where the explanation is hard to hold on to because it compresses a whole sequence of explanations into a phrase, or even just into a single word.”
India growth story was that kind of term. In three words fund managers encapsulated a whole sequence of things that that they thought would lead to the

Indian economic growth continuing to remain strong in the years to come. Or if I were to look at it in a cynical sort of way, fund managers wanted to sound like other fund managers. I guess it was a bit of both.

Having said that over the years I have come to realise that one fundamental point behind what has come to be known as the India growth story is the demographic dividend of India. The demographic dividend of a country essentially is a period of two to three decades when the birth rates go down and this leads to a situation where the workforce of the country is growing at a faster rate in comparison to its population.

Sanjeev Sanyal explains this in his book The Indian Renaissance—India’s Rise After a Thousand Years of Decline, where he defines three stages: “In the first stage, there is an increase in the proportion of the young in the population as birth rates stay high but infant mortality declines.”

In the second stage, the birth rates come down and the number of old people in the population increases at a modest pace. In this stage, the workforce of the country increases dramatically. This is the demographic dividend. In the third and final stage, the working population falls and the number of old people goes up.

India is currently in the second stage. As Sanyal writes: “The UN’s projections suggest that India’s working age population will rise from 691 million in 2005 to 829 million in 2015 and 942 million in 2025 before stabilizing at around 1050 million in the late 2030s…By this time, India will have the single largest pool of workers in the world, by passing an aging China. This means that we have entered a phase where the labour supply will be growing at a very rapid pace for a prolonged period of time.”

What this means is that India needs to create jobs and that too at a very rapid rate for the huge number of people that is entering the workforce every year. And that does not seem to be happening. As the latest Economic Survey points out: “The power of growth to lift all boats will depend critically on its employment creation potential. The data on longer-term employment trends are difficult to interpret because of the bewildering multiplicity of data sources, methodology and coverage. One tentative conclusion is that there has probably been a decline in long run employment growth in the 2000s relative to the 1990s and probably also a decline in the employment elasticity of growth: that is, a given amount of growth leads to fewer jobs created than in the past. Given the fact that labour force growth (roughly 2.2-2.3 percent) exceeds employment growth (roughly about 1½ percent), the challenge of creating opportunities will remain significant.”

If this trend continues in the years to come, the demographic dividend can easily turn into a demographic nightmare.  And this remains the biggest risk to the India growth story.

Another impact of the demographic dividend is an increase in savings. As Sanyal writes: “When the demographic bulge raises the share of working-age adults in the population, the overall propensity to save rises sharply…The bottled up savings cause a sharp decrease in the domestic cost of capital and a sharp increase in the quantum of resources available to the financial system…In turn, this results in a lending boom, job creation and consequently even more savings.”

In the Indian case, the savings instead of going up, have been falling. In 2007-2008, the financial savings had stood at 11.7% of the gross domestic product (GDP). In 2014-2015, the number was at 7.5%, having stood at 7.2% in 2012-2013. There has been a dramatic fall in financial savings over the years. Further, even though the financial savings have improved over the last two years, the improvement has been at a very slow pace. This dramatic fall in financial savings has primarily been on account of high inflation that prevailed between 2007 and 2013.

In an Indian case given the semi-skilled nature of the workforce, the construction sector could have been a huge creator of jobs. But one reason that doesn’t seem to be happening is because the construction activity in the real estate sector has come to a standstill. This is primarily because real estate prices continue to remain high and hence, unaffordable to a large section of the population.

And all this has me worried. And it irritates me no end when fund managers say: “The India growth story is still intact.” It makes me wonder what they have been smoking.

The column originally appeared in The Daily Reckoning on Sep 16, 2015

 

The Gajendra Chauhan syndrome: Why politicians are trying to take over RBI

Gajendra_Chauhan_at_the_Dadasaheb_Phalke_Academy_Awards_2010Vivek Kaul

The politicians are at it again—trying to fill up their people everywhere. The latest casualty of what I will call the Gajendra Chauhan syndrome of Indian politics, is likely to be the Reserve Bank of India (RBI).

During the course of last week, the revised draft of the Indian Financial Code (IFC) was released by the ministry of finance, which is currently headed by Arun Jaitley. Among other things the draft also recommends curtailing the powers of the governor of the RBI. RBI is probably the last institution remaining in the country which still has a mind of its own, and does not toe the government line on all occasions.

As things currently stand, the monetary policy decisions are made the governor of the RBI. John Lanchester in his book How to Speak Money writes: “Monetary means to do with interest rates, and is controlled by the central bank.” Hence, the RBI governor currently decides whether to raise or bring down the repo rate, the interest rate at which the RBI lends to banks. This rate acts as a sort of a benchmark to the interest rates at which banks borrow and lend.
The RBI governor currently makes the monetary policy decisions. He has a technical advisory committee assisting him. Nevertheless, the governor can overrule the committee. World over, this is not how things work. The interest rate decisions of central banks are made by monetary policy committees.

So, the Indian Financial Code wants to move the monetary policy decision making to a monetary policy committee. This makes immense sense given the extremely complicated world that we live in, it is simply not possible for one man (the RBI governor) to understand everything happening in the world around us and make suitable decisions.

This is something that the RBI also agrees with. In a report titled Report of the Expert Committee to Revise and Strengthen the Monetary Policy Framework (better known as the Urjit Patel committee) released by the RBI in January 2014 it was pointed out: “Drawing on international experience, the evolving organizational structure in the context of the specifics of the Indian situation and the views of earlier committees, the Committee is of the view that monetary policy decision-making should be vested in a monetary policy committee.”

On the broad point both the RBI and the ministry of finance which is responsible for the Indian Financial Code are in agreement. It is the specifics that they differ on. As per the Urijit Patel Committee report the monetary policy committee should have five members. As the report pointed out: “The Governor of the RBI will be the Chairman of the monetary policy committee, the Deputy Governor in charge of monetary policy will be the Vice Chairman and the Executive Director in charge of monetary policy will be a member. Two other members will be external, to be decided by the Chairman and Vice Chairman on the basis of demonstrated expertise and experience in monetary economics, macroeconomics, central banking, financial markets, public finance and related areas.”

Hence, the monetary policy committee in the RBI’s scheme of things would have two outside members to be chosen by the RBI governor and the deputy governor in-charge of the monetary policy. The government would have no say in it. This makes immense sense given that world over there is a clear division between the fiscal function and the monetary function. As Lanchester writes in How to Speak Money: “Fiscal means to do with tax and spending, and is controlled by the government.” Monetary, as explained earlier, is controlled by the central bank.

The revised draft of the Indian Financial Code on the other hand talks about a seven member monetary policy committee. Article 256 of the code points out: “The Monetary Policy Committee will comprise – (a) the Reserve Bank Chairperson as its chairperson; (b) one executive member of the Reserve Bank Board nominated by the Re- 20 serve Bank Board; (c) one employee of the Reserve Bank nominated by the Reserve Bank Chairperson; and (d) four persons appointed by the Central Government.”

What does this mean? As per the Indian Financial Code the government will have the right to appoint 4 members in the seven member monetary policy committee. This is a clear attempt by the government to take over the monetary policy from the RBI.

Why does the government want a majority in a committee that decides on the monetary policy of the country? The answer is fairly straightforward. Politicians all over the world want lower interest rates all the time. And this is not possible if the central bank is independent. Since May 2014, the finance minister Arun Jaitley has been publicly pushing for lower interest rates, but the RBI hasn’t always obliged.

Alan Greenspan, the former chairman of the Federal Reserve of the United States, recounts in his book The Map and the Territory that in his more than 18 years as the Chairman of the Federal Reserve, he did not receive a single request from the US Congress urging the Fed to tighten money supply and thus not run an easy money policy.

In simple English, what Greenspan means is that the American politicians always wanted low interest rates. India is no different on that front. Arun Jaitley has talked about the RBI working towards lower interest rates almost every month since May 2014, when the Narendra Modi government came to power.
Politicians look at the economy in a very simplistic way—if interest rates are lower, people will borrow and consume more, businesses will do better and the economy will grow at a faster rate. And this will increase the chances of their getting re-elected. But things are not as simple as that.

The link between low interest rates and economic growth is weak. As Barry P. Bosworth points out in a research paper published by the Brookings Institute: “there is only a weak relationship between real interest rates and economic growth.” Hence, keeping interest rates does not lead to economic growth necessarily. On the flip side, lower interest rates do lead to massive asset price bubbles as has been seen in the aftermath of the financial crisis that started in September 2008. Bubbles aren’t good for any economy.

Further, the trouble is that politicians (or their appointees) asking for lower interest rates are often batting for their businessmen friends. As the current RBI governor had said in a February 2014: “what about industrialists who tell us to cut rates? I have yet to meet an industrialist who does not want lower rates, whatever the level of rates.”

Also, the draft of the Indian Financial Code does not seem to take into account the agreement entered by the RBI and the government earlier this year. As per this agreement, the RBI will aim to bring down inflation below 6% by January 2016. From 2016-2017 onwards, the rate of inflation will have to be between 2% and 6%.
Now how is the RBI supposed to meet this target with a monetary policy committee dominated by members appointed by the government? And who are more likely to bat for low interest rates rather than what is the right thing to do at a given point of time.

To conclude, I have a feeling that the finance ministry bureaucrats obviously want to control things and that explains the monetary policy committee structure that they have come up with in the revised draft of the Indian Financial Code. Given that, the Indian Financial Code is still a draft, the final version as and when it comes up, will be somewhere in between what the RBI wants and what the ministry of finance wants.

I sincerely hope it tilts more towards the RBI than the ministry of finance. We don’t need any more Gajendra Chauhans.

(Vivek Kaul is the writer of the Easy Money trilogy. He tweets @kaul_vivek)

The column originally appeared on Firstpost on July 27, 2015