The RBI is the Achilles heel of India’s Constitution

Indian Liberty Report, LAW & ECONOMICS / Tuesday, August 6th, 2019

The Constitution of India was debated by several eminent and far-thinking personalities who saw far, realised the dangers of large government and limited the government’s influence by including Fundamental Rights in Part III of the Constitution.

As this article points out, the Constituent Assembly mostly dismissed Ambedkar’s vision of a socialist democracy :

If the Constitution was drafted as he had wished, then it would have laws for state socialism, like he proposed in his memorandum. But there is no provision for state socialism in the Constitution. On the contrary, as Dr Rajaram says: “By adding the right to property in the fundamental rights of the Indian Constitution, so that property is not divided and there is no check on it, the varna system has been preserved. These fundamental rights are in Articles 12 to 35. The right to property was placed firmly in Article 19 (f) and (g) and Article 31. Article 19 (f) and (g) give an individual the right to own property and use it in business, etc. No limit was placed on spending. Article 31 is an independent provision which gives the right to private ownership of property. The government can claim a property for public use from any individual but not without paying compensation. The fundamental rights were made sacrosanct and unchangeable so they cannot be tampered with. That is why Article 13 is a part of fundamental rights. Article 32 deals gives the right to approach a court in case of contravention of fundamental rights.”


During the Constituent Assembly debates, only Dr Ambedkar spoke against compensation to landowners for acquisition of their land. He said that this was not his draft. According to him, when Article 31 was being written, the Congress was divided into three groups. Jawaharlal Nehru, Sardar Patel and G.B.Pant had major disagreements. The argument was resolved but by killing land reforms. Dr Ambedkar said that the Article was so ugly he “did not want to even look at it”.


It wasn’t until the Constitution (42nd Amendment) 1976 was implemented that the word “socialist” was introduced into the Preamble. Two years later, the Constitution (44th Amendment Act) 1978 was implemented and the right to property ceased to be a fundamental right.

Kanwal Bharti, ‘Why the Constituent Assembly disagreed with Ambedkar’s democratic socialism

It would then suffice to say that despite the heavily socialist leanings of the politicians of the day, the constitutional framework was saved from lethal doses of socialism. It is equally well understood that the Supreme Court consistently upheld the right to property and the right to free speech in the early days, which displeased the socialists in power. This is how we ended up with strange innovations such as the 9th Schedule to the Constitution, the 1st Amendment (restricting free speech) and the notorious 44th Amendment (burying the right to property).

How did this come to pass? It can certainly be explained by a number of political factors, which are not the subject of this article. But these political factors are irrelevant in the absence of another, more insidious factor, ignored by commentators on both the left and the right. This factor, simply put, is the ability of the government to finance itself without collecting taxes, but by inflating the currency.

The economic foundation for political rule by the people – that is for democratic government – is that the government be financially dependent on the citizens. The way we control the government is through the budget.

As Hulsmann points out :

It would not not be sufficient to say – well we will have a minimum government that just provides security services – so minimum government – we would just provide police forces and we will have courts and an army and we’ll just protect private property rights. This by itself – this is the minimal mission but the mission by itself does not determine the size of the government.

The government may pursue this minimal program with very few resources – let’s say one police officer per 1000 inhabitants or with more resources – one police officer per 100 inhabitants – one police officer per 10 inhabitants or a personal bodyguard for everybody. The policeman may be armed with just a stick may – as as it was the case in England until very recently – may be armed with a stick and a gun – may have a machine gun – may have a tank – may have a tank and a fighter jet and so on and so on – you see the point. So the mission itself does not – by itself – determine the amount of resources that are absorbed in the fulfillment of this mission.

So in order to control the government, it is necessary not only to define the mission of the government, but also the amount of resources that the government may use. If the government wants to become more powerful and extend its influence, it needs to be financial authorised by the citizens. The citizens in the elections must vote for an increase of taxes.

As soon as the government gets more money without taxing its citizens, we have a range of political effects flowing from the fact that:

  • the new financial resources allow the government increase the exercise of its powers ;
  • this increased power of the government does not have the people’s consent.

To put it differently, when the financial power of the government doesn’t depend on the people’s consent but on an external source, the government starts doing things without the people’s consent. Have you wondered why no government in India has been forced to put an end to Aadhar, a project which costs 4 billion USD at least? Or whether taxpayers would have agreed to give 900 crores to a failing Jet Airways just before the elections?

In the modern economy, the way a government raises money without increasing taxes is through the central bank.

When the government has its own central bank, it can access virtually any volume of money by printing new money out of thin air. This is indeed what we observed what we have observed in the past 40 years. Since the abandonment of the Breton woods system, the last link to the gold standard, public debt has exploded. It has moreover increased faster than the real economy and faster than the rate of growth of tax revenues.

When the government can maintain its activities at a level that is not validated by public consent, but by the possibility to access the printing press, it turns tyrannical. The central bank allows for an extension of government activities that is completely out of tune with effective public support. If the population had been called to vote for tax increases to sustain a 4 billion USD project like Aadhar, these jokers would have been out of office long ago.

The RBI is therefore the Achilles heel of the Indian Constitution, which allows the government to expand its powers beyond the people’s consent.

The RBI is also a violation of the rule of democracy known as no taxation without representation, as the government is effectively taxing the public by printing more money for itself, and making the public pay for it by the resulting inflation. Inflation is a direct result of money printing. It is a form of taxation, and it is taxation without representation.

The totalitarian tendencies of central banks have been known for a long time, and it is well understood that central banking is essentially a communist concept. There are other problems that inherently arise with inflation and central banking, which we shall save for another date.

Before we depart, we would like to pay homage, dear readers, to the gold coins that were the money of the Vijayanagara Empire. This money, unlike the RBI’s fake paper money, is as valuable today it was in the 16th century. It will continue to be valuable long after the RBI has been buried. Down with the RBI!

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