HEADLINES:
December 10 2018
RBI-Centre tussle: In case of a split vote, Governor holds the aces
19 November 2018

Section 13 of the RBI Act gives Governor the deciding vote

Monday’s meeting of the Reserve Bank of India’s Central Board will be as important for the actions taken as for the fact that it’s the first time the body has met since the ‘RBI vs Finance Ministry’ tussle broke out in the open. The public exchange of words and criticism began with RBI Deputy Governor Viral Acharya firing the first salvo, saying the government was encroaching on the central bank’s independence and autonomy.

Opinions on the matter ranged from saying that the government had no business to engage in monetary policy decisions to opining that the RBI was never really independent of the government due to the way the RBI Act is worded, and still others pointing out that the whole issue was not a tussle between institutions but between two particular individuals.

The issue of the government encroaching on the RBI’s autonomy has been discussed extensively already, but less has been mentioned about the effects that differences between the RBI Governor and the Centre could have on decision-making, as seems to be the case currently.

One of the main issues with bodies like the RBI Board and the Monetary Policy Committee is whether decision making by committee is preferable to one man calling the shots.

Decisions by committee

The government prefers decisions by committee, as can also be seen by how it pushed to install a Monetary Policy Committee to replace the Governor as the sole arbiter of monetary policy decisions.

But someone in the government at the time of framing the RBI Act clearly seems to have also studied the research on voting systems and committees, and how they can be manipulated.

Section 13 of the RBI Act says: “The Governor, or if for any reason, he is unable to attend, the Deputy Governor authorized by the Governor under the proviso to subsection (3) of section 8 to vote for him, shall preside at meetings of the Central Board, and, in the event of an equality of votes, shall have a second or casting vote.” In other words, the Governor is the tie-breaker in all decisions of the Board. In doing so, they risk giving a potentially discontented Governor the deciding vote.

Giving the Governor the deciding vote is theoretically sound, especially in the context of the research done by Allan Gibbard and Mark Satterthwaite, the seminal work on the efficiency of voting systems.

What they said was that in any voting system, there is always a conflict between the seemingly aligned but counter-intuitively opposed aspects of complete democracy and complete honesty.

The theorem says that if a system is completely democratic where everybody has an equal vote, then it would be vulnerable to tactical voting (which is where people vote according to their own private interests, even if their stated interests are different). In other words, people try to game the system in their favour every time they get the chance.

The only way to counter this is something the government seems to have realised — empowering a single individual in the voting system more than the others. In both the RBI Board and the MPC, that person is the Governor, who has been given the deciding vote in the case of a tie. How that plays out on Monday will be key. Will personal animosity derail professional duties?

Unlikely, but non-zero in its probability.

 

 

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