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Is the RBI overstaffed?

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November 14, 2003 10:27 IST

Today, everybody talks about increasing efficiency in an organisation and invariably the soft-option is labour, where rationalisation and right-sizing are the euphemisms that come to mind.

Overstaffing in the Indian public sector is now legendary. The government departments and public sector banks are thus quite naturally the "usual suspects or targets" in such discussions.

We have already seen public sector banks invoking voluntary retirement schemes to remove excess flab with nearly one lakh employees opting for premature retirement during the first round. But what about the regulatory body in this field, the Reserve Bank of India?

There is a theory which states that central banks have turned themselves into job banks. They create make-work positions, and their staff becomes bloated. They end up much larger than they need to be to manage money supply.

Over time, there is an irresistible tendency to produce too much money and, hence, inflation. Well, of course, inflation generates more central bank revenue, which can be used to pay for even more staffing.

The RBI is one of the highest staffed central banks in the world and can be compared with the staff strengths of other central banks. All monetary authorities have the same functions and the 24-odd departments listed in the RBI Annual Report would feature in the functions of a central bank anywhere in the world even though the nomenclature could be different.

We cannot talk of the ratio of business per employee due to differences in currency valuations. India, with a weak currency would anyway show poorly. If we talk of employee per population, RBI would shine while the others would fare unsatisfactorily as the population base is very high. But this would be a biased yardstick as the central bank does not really reach out to the population the way commercial banks do. Therefore, the absolute numbers appear to be the best indicator.

The RBI had one of the highest staff of 28,884 (excluding China with over 1,50,000 and Russia with around 80,000) in 2002 followed by the combined Federal Reserve with 22,297. But here we are talking of 12 of the Feds taken together.

Banque de France and Bundesbank (Germany) had 15,216 and 15,213, respectively, while Banca d'Italia had 8,466 employees. Bank of Indonesia had 5,465 employees, Bank of Japan had a staff strength of 5,370, while the Bank of England had just 2,187.

The Bank of Korea had 2,093 employees, while Bank Negara Malaysia had 2,214. Quite clearly, there is something amiss somewhere as most of the banks seem to be doing the same job with a smaller number of human resources.

The composition of the staff can provide some clue here even though this information is not available for all the banks. But the composition of the staff for the RBI is known and is interesting.

The so-called Class 1 of the staff constituted 25 per cent of the total, which means that the remaining were actually either doing routine jobs like stapling and counting currency notes, standing at the gate or ushering in people or pushing files or tea cups. But there is solace to be had when we see a similar picture in the case of Banca d'Italia where the managerial class accounted for just 24 per cent of the staff.

But we need not really lose hope here as there has been some sort of rightsizing going on with the staff of the RBI falling from 33,084 in 1997 to 28,294 in 2002, a fall of 17 per cent, though one is not sure if it is on account of retirement, curtailment of fresh recruitment or any early retirement options being offered.

The share of non-clerical staff has also risen from 21.2 per cent to 25.1 per cent. At the same time, the two popular indicators, business as well as population of the country have been increasing. Population has in fact grown by 12 per cent during this period while the absolute size of the RBI's balance sheet has doubled. So, there appears to be a very tenuous relationship between staff size and business or population.

The role of central banks all over the world has changed dramatically in the past decade with liberalisation and acceptance of the Bank for International Settlements norms. The role would be shifting more towards regulation and supervision as the central bank becomes a think-tank with economic and financial research playing a more important role.

In this situation, there would be a greater need for people with ideas who are able to analyse and react to situations. There would be less demand for people to perform mundane activities, where in fact, technology has already provided answers. The RBI could consider these options.

Views expressed here are personal.

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Madan Sabnavis