The Hindu : Bimal Jalan and the art of demystification

Online edition of India's National Newspaper
Thursday, Sep 18, 2003

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Bimal Jalan and the art of demystification

By C. R. L. Narasimhan

If more people understand the nuances of public policy, decision-making will be better informed leading to fewer mistakes.

CHENNAI SEPT. 17. Shortly after laying down office as the Reserve Bank of India Governor, a visibly relaxed Bimal Jalan met The Hindu at the bank's headquarters in Mumbai on September 11.

As the head of the Indian central bank for almost six years, Dr. Jalan has been credited with a number of achievements that have received favourable comments. His single biggest contribution however is not something specific to the conduct of monetary policy. It is in trying to demystify relatively arcane economic policies that Dr. Jalan has set a trend that others can emulate. In fact, with his imminent entry into the Rajya Sabha, Dr. Jalan will hopefully carry forward his agenda into the highest levels of policy making.

It is not that such efforts are lacking in other areas of public policy. The budget exercise for instance is being made transparent, year after year. The Government releases periodical status reports on the economy and official statistics are constantly updated on the official websites. But it is in monetary management that the process of demystification seems to have gained unstoppable momentum, especially during the Jalan era.

For the RBI and Dr. Jalan the process might have actually begun with the monetary and credit policy statement itself. In what is regarded as a drastic change in style, he saw to it that the statement became a "non-event". The earlier bi-annual policy statements — coinciding with the busy and lean seasons — were replaced by an annual policy statement (in May) followed by a mid-year review (usually in October). More significantly, important headline making announcements such as a change in the bank rate or cash reserve ratio were made on several occasions outside the monetary and credit policy statements. Ironically, even while the message was not to expect any sensational announcements, the monetary policy itself has come to be closely watched and probably understood by a much wider constituency than those for whom it is intended.

What are the advantages of the new approach? As Jalan himself puts it, demystifying makes for transparency, in turn leading to accountability and responsibility. If more people understand the nuances of, say, exchange rates or interest rate policy, there will be substantial gains to public policy itself. It will make for more informed decision making.

"A wrong decision in these areas can cause substantial damage in a difficult situation and involve substantial costs. In a normal situation you may not be able to visualise these, even though there is a cost to bad decision making in the form of, say, a drop in the growth rate by a percentage point or two. But in times of crises the consequences can be terrible. The 90s were a period of crises — in Latin America, Russia, East Asia — and somebody somewhere must have taken a wrong decision. We, in India also went through a lot of difficulties — over the last five years — we have had the Asian crisis, Pokhran sanctions and the global slowdown." "The idea behind transparency, accountability, collective decision making is to try and improve our decision - making. We might still go wrong but we'll be able to reverse track sooner rather than later."

Dr. Jalan is certain that we will be proceeding in the same direction, in trying to understand the policy stance better, "why it is done, what it is doing. If the results are right, well and good. If the results are not good then there must be a debate".

In a recent speech on the exchange rate scenario, Dr. Jalan aptly summarised the outcome of several debates on the subject. In the end, he said, "There are no ultimate truths, something final about these for all time to come. So they must be thrown open to debate. If there is criticism it will be welcomed. Policy makers should welcome all constructive criticism."

Dr. Jalan says that any opinion on economic or public policy not readily understood is of no use. Economic policy written by academics for experts is all right but public policy will be better off if opinions are understood.

Parliamentary debates are bound to be enriched in the days to come.

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