RBI- an Ambassador

The Oxford dictionary defines an Ambassador as “a representative or promoter of a specified activity”. In fact, an ambassador plays multifaceted role in the real world situation unless he is assigned with any specific activity. He looks after the political, cultural and economic interests of the country which he represents. He not only looks after his own country but also the interest of the country in which he is posted. The ambassador also has to take care of his nationals living abroad. In short, an ambassador is the face of the country he represents. 

RBI represents the economic interest of India. It is an economic ambassador of India. It plays a vital role in the economic interest of the country. RBI represents India in the world economic forums like IMF and Bank for International Settlement. The following words of Hillary Clinton bring the importance of economic diplomacy: “Emerging powers like India and Brazil put economics at the centre of their foreign policies. One of the first questions they ask is, “how will this affect our economic growth?” We need to be asking the same question, not because the answer will dictate every one of our foreign policy choices — it will not – but it must be a significant part of that equation,”[1] In this context, the role played by RBI as economic ambassador is really hilarious.

Building relation, sharing knowledge and bringing expertise

RBI conducts and participates in various seminars and conferences across the world. These seminars and conferences are conducted by Central Banks of world countries, Multilateral Bodies, Government Institutions and Non-Government Institutions. These are aimed at information exchange, knowledge sharing and building relationship among the participants. This is clear from the objectives listed in the 54^th Session (Berlin Session 2003, Fisher’s “Short Stories on Wealth”) of Irving Fisher Committee (IFC) on Central Bank Statistics. It reads as follows: “By providing a forum for discussion, the IFC aims at:…. exchanging views between central bankers and academics on statistical methods and techniques;….facilitating personal contacts between central bank statisticians”[2]. These objectives almost fit for all the conferences and seminars. In this, RBI personnel participated and presented papers.

RBI also conducts such seminars and conferences. RBI now regularly conducts International Research Conference from 2010 onwards which was started on the occasion of Silver jubilee celebration of RBI. Other conferences to be named are SAARCFINANCE Governors’ Symposium, Asia Regional Committee Meeting & International Conference, 2010. Apart from these conferences, various multilateral   committees and consultations also help in building relations and bringing expertise. It is vivid from the following observation of Y. V Reddy: “…. information on global best practices is obtained on a continuous basis. In many of the technical papers or reports of working groups that are placed on the RBI website, a reference to comparative country-practices may be. In fact, a Committee had assessed our standards and codes vis-à-vis the global standards on several aspects of financial sector in 2001 and these have since been updated. Currently, an exercise of comprehensive self-assessment, using inter-alia the IMF/World Bank Handbook on Financial Sector Assessment (2005) is under way under the Chairmanship of Dr. Rakesh Mohan, Deputy Governor, with Dr. Subbarao, Finance Secretary, as the Co-Chairman. The process incorporates obtaining advice from about forty nationally and globally renowned experts.                                     

“The report on this self-assessment should be available soon in public domain. Our senior officers are involved in several multilateral working groups, such as those of the Financial Stability Forum and the Bank for International Settlements, thus acquiring in-depth knowledge of global practices. In fact, some of our professionals work on deputation in these multilateral institutions as also some other central banks, thus bringing back a wealth of experience. Similarly, to facilitate a wider exposure, officers are selectively enabled to work in NGOs or other financial institutions. The annual conference of regional directors and heads of departments also provides an occasion to learn from eminent personalities from diverse fields”[3]

Along these conferences and summits, exchange of culture too takes place. For example, on the sidelines of SAARCFINANCE Governors’ Symposium which was held in Kumarakom, Kerala, sunset Cruise in Back Waters and Cultural Programme named ‘Glimpses of Kerala’ (live Performance of Kalaripayattu, Kathakali, and Mohiniattam) was also conducted. This symposium ended with dinner with the theme of “Colours Of India”, which displayed the food culture of India.

External Trade and Investment

RBI plays a vital role in the external trade and investment of India. It frames policy in consultation with other stake holders and creates conducive environment for trade and investment in the country. It facilitates easy payment settlement and remittance by individuals as well as trading organizations.

RBI is entrusted with the mandate of ensuring smooth external trade and payment under FEMA. For example, sub-section 2 of Section 7 of FEMA reads “(2) The Reserve Bank may, for the purpose of ensuring that the full export value of the goods or such reduced value of the goods as the Reserve Bank determines, having regard to the prevailing market conditions, is received without any delay, direct any exporter to comply with such requirements as it deems fit.” By fulfilling this mandate, RBI ensures free flow of trade and finance. This is evident from the following observation: “The RBI exercised a tight regime of exchange control,  particularly under the Foreign Exchange Regulation Act (FERA), 1973; but, a qualitative change was brought about in the legal framework to enable liberalisation by the enactment of the Foreign Exchange Management Act (FEMA) in June, 2000 which replaced the FERA. With this, the objectives of foreign exchange regulation have been redefined as the facilitating of external trade and payments as well as the orderly development and functioning of the foreign exchange market in India.”[4]

RBI is the nodal authority for FDI coming through Automatic Approval route. It plays an important role in FDI and FII policy of India along with Government of India. The role of RBI in inward capital flow is commented by Sanjaya Panth, Senior Resident Representative in New Delhi, India, Asia and Pacific Department of IMF in the following words: “The very deft handling of the economy by policy makers, both by the central government as well as the RBI, also makes India attractive as a destination for capital inflows”.[5] RBI also facilitates outgoing FDI through its Department of External Investment and Operations. The policy framework covers FDI, GDR, ADR and IDR. FDI and FII bring capital and the fringe benefits like competition, management technique and technology to India.

RBI brings the money surplus available with NRIs and PIOs which gives mutual benefit to NRIs, PIOs and the nation. It has very liberal and flexible deposit scheme for them. The deposit schemes are available either in Indian currency or foreign currency.  These are available either on repatriable or non-repatriable basis. So, these schemes give variety of choice to NRIs and PIOs. Out of India’s external debt, NRI deposits constitute 18.5 % (at the end of March 2009).[6] These deposit schemes keep them engaged with India. It gives them satisfaction of contributing to their nation.  It gives good return to them through attractive interest rates which are benchmarked with LBOR and SWAP. India gets capital for its development.

Not only RBI helps in bringing capital to the country, it also helps in smooth outflow of capital which helps in investment by Indian companies abroad. This facilitation helps the Indian companies to fulfill their dream of becoming multi-national companies.

Regional and International Cooperation

RBI plays central role in the financial cooperation of India in the regional and international arena. The SAARCFINANCE is a regional network of SAARC Central Bank Governors and Finance Secretaries. It meets twice a year. Its objectives, inter alia, include promotion of cooperation among Central Banks and Finance Ministries in SAARC member countries through staff visits and regular exchange of information. Towards this end and other objectives, RBI established SAARCFINANCE cell in its Department of Economic and Policy Research, headed by its Director. Apart from SAARCFINANCE meeting, SAARCFINANCE Governors’ meeting, SAARCFINANCE Governors’ symposium and SAARCFINANCE Coordinators’ meeting are also being held.  All these initiatives means and calls for   RBI’s active involvement, participation and contribution. RBI takes many initiatives. SWAP arrangement and SAARCFINNCE website are such kind of activities. It hosts lot of seminars, workshops and special studies. Till 2011, out of the 38 such SAARCFINANCE’s seminars and workshops, 11 were hosted by RBI. In SAARCFINANCE staff exchange and training also RBI is the major contributor. These numbers are not mere statistics. The major share of RBI in these programmes indicates the lead role played by it, its expertise and its eagerness to lend helping hands to friendly countries which will have a long standing impact on the external relation of India with these countries.

SAARC-ADB Inception Workshop for the SAARC Studies on Trade, Economics and Finance, was held at the SAARC Secretariat on 23 and 24 June, 2011. With regard to the Study on Economic Integration, among other issues to be studied along with some main issues, is to study the role of India as a Financial Hub in SAARC region.  RBI has a big say in increasing the stature of India as a Regional Financial Hub.

SAARC Payment Council was established with the aim of easy cross border payment settlement and integrated regional payment system. It is helpful in the growth and development trade and investment among SAARC countries. RBI participates and facilitates this process along with Central Bank of other countries. This payment council stimulates and supports the process of SAFTA. RBI is also a member of Asian Clearing Union (ACU). ACU, established at the initiative of the United Nations Economic and Social Commission for Asia and Pacific (ESCAP), is headquartered in Tehran. This is aimed at facilitating easy payment settlement and trade among member countries. These kind of cooperation along with promotion of trade helps in building relation with the members of these payment gateways.

RBI plays a major role in external security of the country. It has regulatory power under Prevention of Money Laundering Act (PMLA) and Foreign Exchange Management Act (FEMA). The role played by RBI in this regard helps in controlling finance to terrorism. Along with other agencies RBI cooperate in the work of Financial Action Task Force to prevent terrorism.    

India was a major beneficiary from IMF’s (hereinafter referred to as fund) assistance programs in the past. Now the situation has changed. RBI supports Fund’s effort to ensure global financial liquidity. It is a multilateral support provided by RBI. RBI entered into an agreement with Fund to purchase Fund promissory notes. The excerpts from the agreement made in this regard reads as follows: “In light of the international effort to ensure the adequacy of the financial resources available to the Fund, and with a view to supporting the Fund’s ability to provide timely and effective balance of payments assistance to its members, the RBI agrees to purchase from the Fund promissory notes”[7]

In G20, a global forum, RBI has its hands.  Rakesh Mohan, former   deputy governor, RBI, co-chaired the G20 working group on Enhancing Sound Regulation and Strengthening transparency. In fact, after the Great recession , RBI became tutor of Financial Stability to the world countries who were hitherto concentrated only on price stability. RBI is member of Financial Stability Board, which replaced the erstwhile Financial Stability Forum after G 20 London summit. This Board coordinates the work of national level financial authorities who are responsible for financial stability and international level standard setting body for financial stability.

India has secured its place in G20 due to its vibrant economy. Having been identified as the engine of economic growth in the 21st century, India’s role in the world stage has been ever enlarging. In this process, there is yet greater role for RBI to emerge and embark upon. Past records reveal that RBI would carry forward this endeavour satisfactorily and promptly.  

In an interview to The Economic Times Jim Walker of Asianomics who predicted the sub prime crisis well in advance, in answering a question observed “Yet again the RBI demonstrated this week why we have labeled it the best central bank in Asia.” In fact RBI not only the best bank in Asia a best central bank in World. If you want to mellow down say RBI is one of the best bank in world.  It is the best policy practices of RBI ring fenced India from global melt down.  

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[1]  Learn from India; its economic might that counts, says Hillary, Oct 15, 2011,firstpost.world http://www.firstpost.com/world/learn-from-india-its-economic-might-that-counts-says-hillary-108547.html

[2] ifc Bulletin No 16 – July 2003, http://www.bis.org/ifc/publ/ifcb16.pdf.

[3] Y V Reddy: The Indian economy and the Reserve Bank of India – random thoughts, Text of the Shri Yeshwantrao Chavan Memorial Lecture 2007-08 by Dr Y V Reddy, Governor of the Reserve Bank of India, at the Indian Institute of Public Administration, Maharashtra Branch, Mumbai, 31 March 2008. 

[4] Y V Reddy: The Indian economy and the Reserve Bank of India – random thoughts, Text of the Shri Yeshwantrao Chavan Memorial Lecture 2007-08 by Dr Y V Reddy, Governor of the Reserve Bank of India, at the Indian Institute of Public Administration, Maharashtra Branch, Mumbai, 31 March 2008. 

[5] Transcript of a Press Briefing on the International Monetary Fund's 2010 Article IV Consultation with India, http://www.imf.org/external/np/tr/2011/tr010611a.htm

[6] INDIA’S  EXTERNAL  DEBT, A  Status  Report 2010-11, http://finmin.nic.in/the_ministry/dept_eco_affairs/economic_div/Indian%20External%20Debt201011E.pdf

[7] Note Purchase Agreement between the Reserve Bank of India and the International Monetary Fund, http://www.imf.org/external/np/pp/eng/2010/030810.pdf