(Photo: Mint)
(Photo: Mint)

Opinion | Institutional independence is not a binary yes-or-no issue

Most Indian institutions have to operate in grey areas in order to fulfil their public mandates

In recent years, there has been a lot of talk about the executive damaging institutions and their independence. This includes institutions such as the judiciary, the central bank and market regulators. While some of these accusations may be politically motivated, some others may not be.

The purpose of this article is not to examine whether the accusations are true, but to junk the idea that issues of independence, or the lack of them, are binary in nature. The assumption that independence is either “1" or “0", either present or absent in an individual or institution, is a typical—and often untrue—Western binary. It is also antithetical to the common-sense Indian concept that often we have to operate in areas of grey. Real choices are never binary, but one between more and less independence, between a better type of independence and a lower one. Independence has often to be informed by a sense of shared responsibility or inter-dependence when public interests are involved.

Take a simple example: if the economy is in deep trouble, it is silly to think that the Reserve Bank of India (RBI) and the finance ministry can act independently of each other. The only solution is to work together, with each ceding a part of its decision-making sovereignty to solve a problem. Similarly, it is not going to be possible for the judiciary to be totally independent of the executive, just as it is not also meant to be the handmaiden of the executive. The concept of independence has to be informed by the overall purpose for which an institution is created; in this case, delivering justice.

The problem lies partly with India’s intelligentsia, which has been brought up on Western notions of complete independence of institutions, though these themselves are a myth. Consider the so-called separation of Church and State, while every US dollar bill proclaims “In God We Trust" and the British monarch is the head of the Church of England. The same applies to the judiciary or economic institutions such as the Federal Reserve.

In the US, judges are appointed for life and hence theoretically beyond executive influence after appointment. But is this really so? The process of appointing a US Supreme Court judge is intensely political and most judges are appointed on the basis of a partisan evaluation of their personal ideologies and inclinations. Is an ideologically committed judge truly independent?

How is the US Fed that independent when all its chairs are appointed by the president and Congress, often on the basis of their known economic predilections? The US Securities and Exchange Commission is appointed by the president with Senate sanction, but partisanship is not discouraged. The only limitation is that not more than three of five SEC members can be from the same party.

In actual practice, the decisions of the US judiciary and the securities watchdog can be as arbitrary as one can expect in a wayward Indian system. The SEC went after Rajat Gupta, former boss of McKinsey, for giving insider information to Raj Rajaratnam, and Gupta did time in prison for his mistakes. However, when treasury secretary Hank Paulson told a bunch of hedge fund managers in July 2008 before the Lehman crisis exploded that Uncle Sam would take over two mortgage companies, Fannie Mae and Freddie Mac, information that was given in advance to a select few, there was no probe of how this information may have been used by those privy to it to make millions. Nor was Steve Jobs penalized for giving himself backdated stock options, nor Michael Dell for being given illegal allocations of IPO stock by Wall Street investment banks, nor Warren Buffett for one of his top executives apparently buying Lubrizol stock during the due diligence phase before he bought the firm. The SEC seems to have internalized the idea that American business icons cannot be brought down, but a Rajat Gupta was fair game.

The point of these observations is not to suggest that these things don’t happen in India, but simply to underscore the reality that so-called institutional independence does not automatically result in better decisions that are truly fair to all. Independence does not always flow from constitutional charters, nor does it disappear if two interested parties jointly make appointment decisions. India has had fairly good RBI governors and Securities and Exchange Board of India (Sebi) chairpersons, though these were executive selections, and it has also had bad judges at the highest levels, though they are selected by the Supreme Court collegium without executive intervention.

The independence of institutions or individuals does not flow from the process used for appointments or the mechanisms used for coordination, but from an acute understanding of the larger interest such independence is supposed to serve. At times, institutions must share sovereignty for the public good; at other times, they must not be part of a general consensus when larger issues are at stake. There is no such thing as completely independent institutions. We live in a society and sometimes consensus works better than a nominal assertion of independence. Institutions must ultimately be judged by overall performance, not just formal structures of independence.

R. Jagannathan is editorial director, ‘Swarajya’ magazine

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