It is remarkable that while the threat to democracy
posed by the proposed constitutional review has been widely appreciated,
the fact that the Budget for 2000-01 announces measures which would
restrict democracy even more effectively than what the Venkatachaliah
Committee can ever plausibly do, has gone largely unnoticed. And yet
that is precisely what the effect of its financial liberalisation measures
would be.
Take for instance the proposal to give autonomy
to the Reserve Bank of India. This would mean that the entire gamut
of policies relating to monetary and exchange rate management would
be taken out of the purview of political control and handed over to
a body that would be accountable to no one, and certainly not to the
people of the country. Political control entails parliamentary control;
it therefore entails, indirectly and however imperfectly, a measure
of accountability to the people of the country. The essence of democracy
consists in enforcing this accountability to the people. Granting autonomy
to the Reserve Bank would eliminate this.
Some may ask why if the prices of vast numbers
of commodities remain outside the purview of government control (save
in exceptional cases when the government has to intervene, and that
too indirectly through supply management measures), the interest rate
and the exchange rate, which are just two prices, should be subject
to such control. The answer is simple. The interest rate and the exchange
rate are two very special prices, which have profound macroeconomic
implications, impinging on the people's living standards. The autonomy
of the Reserve Bank therefore means that decisions affecting the people's
living standards are henceforth to be entrusted to a body that, even
in principle, is not accountable to the people.
This is not just a formal point. An autonomous
body entrusted with the management of the interest and exchange rates
would naturally seek to achieve stability in both these markets by ensuring
that the "confidence of foreign investors" remains unimpaired, that
is, internationally-mobile speculative finance capital is kept appeased.
This means two things: first, it would have to have a say in all domains
that have a bearing on speculators' confidence, including fiscal policy,
trade union rights, and even the political sphere; and secondly, it
itself would have to be run by persons who inspire maximum confidence
among the international speculators, such as ex- or current World Bank
employees, ex- or current IMF employees, or those enjoying these organisations'
confidence. In short, it would be the international financiers who would
virtually run the country and not (however indirectly) the people, as
democracy entails. Measures such as granting autonomy to the Reserve
Bank therefore amount to a veritable coup d'etat carried out by international
financial interests against democratic governance. It is not surprising
that this is a demand systematically made on all countries undergoing
"structural adjustment".
Some may ask: what is wrong with this? If an
autonomous central bank, by generating "investors' confidence", can
attract larger capital flows, then so much the better. Why should we
forgo this opportunity by entrusting control over the central bank to
a bunch of dubious politicians in the name of "democracy"? After all,
countries like the U.S. have central banks that are autonomous, and
they have done well in terms of economic performance; why should not
we too follow in their footsteps? This view fails to distinguish between
speculative capital and productive capital, between "hot money flows"
and foreign direct investment. It is only the latter that can contribute
to growth, and that too if it does not supplant already existing domestic
production but adds to such production by being oriented towards the
export market which in many instances is beyond the reach of existing
domestic producers.
Speculative capital inflows do not per se contribute
to growth. On the contrary, since an economy open to such flows has
to be concerned with speculators' "confidence", which generally demands
the pursuit of deflationary policies, growth suffers as a result of
such openness. What is necessary for growth, therefore, is to encourage
the inflow of the right kind of foreign direct investment while closing
doors, or at least controlling, the inflow of the wrong kind of foreign
direct investment and, above all, of speculative capital flows. This
requires conscious political intervention; an autonomous central bank
run by a bunch of financial bureaucrats, recruited typically from the
stables of the IMF and the World Bank, would obviously never enforce
any such discriminatory controls.
