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BW Businessworld

Stepmotherly Central Bank

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The people of Calcutta probably did not notice their good fortune, but they were recently the object of specially warm feelings from the country's central bank, no less. Shyamala Gopinath, the deputy governor of the Reserve Bank, descended upon the city and inaugurated an outreach programme designed for the city. Its subject was "Foreign Exchange for You". Just why Calcutta was chosen for this honour is not recorded.

Maybe the Reserve Bank felt it had neglected the city. Maybe it noticed that Bengalis are inveterate travellers, but are not sufficiently attuned to holidays abroad. Maybe it found out that most travellers were perfectly comfortable dealing with whisperers in the alleys behind New Market and were not entering the portals of banks to buy foreign exchange.
Or, more likely, the Reserve Bank decided that it had too much foreign exchange in its coffers and decided to do some market development. For on the day of her visit, the Reserve Bank was sitting on a pile of Rs 1,234 thousand crore of various foreign currencies, apart from gold in its underground vaults that it valued at Rs 102 thousand crore, Rs 20 thousand crore that it was entitled to take from the International Monetary Fund as Special Drawing Rights, and Rs 13 thousand crore that it could bring back if it decided to withdraw from the Fund. That is Rs 11,000 for every inhabitant of the country; if RBI invested the money wisely and shared the returns with the people who are supposed to own it, each of us would get a pink note worth Rs 1,000 every year. But since Mrs Gopinath was not handing out the cheques, no queues were seen outside the National Library before her talk or after.

Since the ardent travellers of Calcutta took no interest in her visit, they missed the chance of asking Mrs Gopinath a question: why does it force banks to give Indians travelling out of the country currency notes for a fifth and travellers' cheques for the rest of the foreign exchange it allows them to take? Why can they not take all the money in currency notes? The only reason can be that the Reserve Bank is a generous mother of banks, and likes them to make a profit on the travellers' cheques they sell. But maybe its motives are less maternal, for the travellers' cheques themselves are issued by a clutch of foreign companies such as Visa and American Express; just what kinship exists between them and the Reserve Bank is not known.

The man on the street in Calcutta does not go off to the beach in Hawaii or the ski slopes of Vancouver. He would have liked to ask Mrs Gopinath a different question. Why is it that no taxi driver in Calcutta gives change? Why are currency notes its shopkeepers hand out so filthy and stinking? Why is there such a shortage of currency in eastern India? Arguing analogically from the case of travellers' cheques, it would seem that the Reserve Bank is in cahoots with all the petty traders in the east. Despite the Reserve Bank's best efforts to feed paranoia, such an alliance is inconceivable. It is more likely that there are some people in the east who love to remove currency from circulation. Since currency bears no interest, their love would seem irrational. But it is possible that there is some shortage of currency in regions east of India, and that their inhabitants use Indian currency for lack of better options.

It is surprising that their preference has not come to the notice of the agency believed to be situated in Pakistan which is reputed to print excellent fake Indian notes and use them to finance terrorists, smugglers and simple cross-border traders. After all, maintaining former and future terrorists and saboteurs can be expensive, and keeping them secure from mullahs, jehadis and other religious entrepreneurs is difficult. It is better to send such useful seditioners to India and deliver to them every month a pension in brand new Indian currency. It is important that the Reserve Bank acts before the said agency and increases the supply of currency to eastern India, so that this hitherto patriotic part of India does not succumb to the profits of sedition.

More seriously, the shortage of currency is one symptom of the general shortage of credit in eastern India. Outsiders who visit it would notice the profusion of small shops; in some parts they are so numerous that there is no space for pedestrians to walk. But they would also have noticed how scanty and poor the stock of all these retail outlets is; if they ask, they will discover that none of the shops has a penny of credit from banks. The Reserve Bank should persuade its daughters to end their stepmotherly treatment of the east.

The author is Consultant Editor of Businessworld.


(This story was published in Businessworld Issue Dated 30-05-2011)