The Furore Over Palai

TWELETH YEAR OF PUBLICATION August 27, 1960 Volume XII —No. 35 Price 50 Naye Paise EDITORIALS The Furore over Palai 1301 The Furore over Palai Surface Calm in Laos 1302 MORE unkind things have been said about the Reserve Rank of India WEEKLY NOTES in the past two weeks than in all the previous 25 years of its Socialism: More or Less- existence. It has been accused of everything from incompetence to Foreign Exchange Crisis breach of faith; its actions have been denounced and its judgments A train—Textile Exports in questioned. In the growing eagerness to castigate it. many, including 1959— Two More Com Members of the Lok Sabha. have not paused to reflect on what it is that mittees The Gujarat Shuffle justifies such an attitude. By sending the Palai Central Bank into Broader View of Com liquidation, the Reserve Bank, it would seem, has deliberately inflicted pany Regulation—Case for great misery on a large number of people; and. therefore, say the critics, it Inter-Penetration — Univer deserves condemnation. Granted that all avoidable misery must he sity Curb on Admissions — avoided, what is the course that the Reserve Bank should have followed? Into Space and Rack 1301 There is no agreement on this point. Many have found it incredible that the Palai Bank, whose all airs were known to be unsatisfactory even LETTERS TO THE EDITOR in 1951. should have been allowed to remain in existence so long. Had Philips (India): A Comment the Reserve Bank not been so tardy in making up its mind, hundreds —Bank of Rajasthan: A of depositors who have now lost their all would have been spared the Comment 1307 loss and the misery, the argument runs. As against these, there are LETTER FROM MOSCOW many particularly in Kerala, who maintain that the Palai Bank should Khrushchev Line Will Hold have been kept going. Had the Reserve Bank not been so hasty, they Good argue, the Palai Bank would have tided over its temporary difficulties, —Samar Sen 1309 and no depositor would have suffered any loss. These contradictory views ought to cancel each other; but they have instead combined to BOOK REVIEW lessen greally the prestige of the Reserve Bank. Determinant of Economic Progress When one ponders over the issue, one is astonished at the lack of Rajendra Kumar 1311 proportion or sobriety in judging the actions of the Reserve Rank. To SPECIAL ARTICLES be sure, the Reserve Bank occupies too important a position in the Agriculture in the Third Plan national economy for its errors of judgment to be taken lightly. But N A Mujumdar 1313 that very fact makes it important for everybody to guard against accu Rural Industrialisation: Its sing it of errors of judgment — or worse — hastily or for partisan Pattern and Problems reasons. More than any other industry, the banking industry defies —M C S 1317 evaluation in terms of criteria which are completely free from value- Agrarian Organisation of judgments. It is founded on trust and good faith, and no central bank can function effectively if the bona fides of its acts are suspected. That Japan a large portion of the Palai Bank's advances had become irrecoverable — Sipra Das Gupla 1321 or sticky is one of the premises on which the Reserve Bank acted. AROUND BOMBAY MARKETS This is a matter for judgment, and however incompetent the Reserve Secondary Reaction in Rank might be. it is clearly less incompetent than those outside, and Progress there is little point in pretending to the contrary. The second reason CURRENT STATISTICS given by the Reserve Bank for taking the action it did is that of a Banking Returns — Wholesale 1325 progressive increase in the withdrawal of deposits, consequent upon the Price Index—Foreign Trade publication of the last balance-sheet of the Palai Rank. Nobody dis —Jute — Tea Auctions in putes that this did happen and that the Reserve Bank would have failed Calcutta—Coal Production in its duty if it had not stopped further erosion of deposits. In other and Despatches words, there is very little ground for arguing that the closure of the Palai Bank was too precipitate an action. The graver charge is THE ECONOMIC WEEKLY that the Reserve Bank erred in letting things drift so long. 1330 104, Apollo Street. Fort. Bombay That charge, unfortunately, sticks. Even before the passing in 1950 Telephone. : 253406 of Section 35A of the Banking Companies Act. which made compliance Annual Subscription : Rs 24 with directives issued by the Reserve Bank binding on the banks, the Foreign 40 s or $ 6 Reserve Bank had ample powers under the existing Act to compel .

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