Shortly after former Reserve Bank of India (RBI) governor, D Subbarao revealed in his new book, Who moved my interest rates, that the Congress-led United Progressive Alliance (UPA) government overstepped into the central bank’s operational turf during 2008-2013, former finance minister, P Chidambaram said there are contrary passages in the book.
“Read the whole book. There are contrary passages. I have written an endorsement,” Chidambaram told Firstpost.
In his book, Subbarao has revealed several instances, where he had direct confrontation with former finance ministers, P Chidambaram and Pranab Mukherjee and how the UPA-government trampled the economy of the central bank during his term and how unhappy he was about such interventions. One such instance that Subbarao points out happened when the then finance minister P Chidambaram, suo motu constituted a liquidity management committee with the finance secretary as its chairman. “I was annoyed and upset by this decision. Chidambaram had clearly overstepped into RBI turf," Subbarao says in the book.
The RBI decided against being a part of that panel though the government sought its representation.
The Chidambaram-Subbarao differences on policy matters became open when Chidambaram publicly said in October, 2012 that “Growth is as much a challenge as inflation. If the Government has to walk alone to face the challenge of growth then we will walk alone.” This statement came within hours after Subbarao, the then governor, refused to cut the policy rate despite public demand in the half-yearly review of the monetary policy, to continue with the fight over inflation.
Another major instance, Subbarao highlights in the book was in April, 2012, when the then finance minister, Pranab Muherjee almost announced the monetary policy an hour before the central bank announced the monetary policy.
That was a time when Subbarao cut the repo rate (at which it lends) 50 basis points, after hiking it around 13 times. “(Then) finance minister Mukherjee was scheduled to address a business chamber in Delhi an hour before the policy release time. As he was entering the meeting hall, he commented informally to the industrialists and the media that surrounded and greeted him that "the governor will shortly give you good news". This was most inappropriate and indiscreet. I am positive that the finance minister did not intend any mischief; nor did he want to undermine the RBI. I think he was just being naiive, overanxious to be the bearer of good news to the corporates in the midst of widespread criticism of policy paralysis in the government hoping that some of the credit for this would rub off to him," Subbarao said in the book.
Also, Subbarao outlines two instances when he had run-ins with the government on the reappointment requests of former deputy governors—Usha Thorat and Subir Gokarn, despite both having the merit for extension. In the case of Thorat, Subbarao recounts, “Usha became part of the price we had to pay for asserting the autonomy of the central bank,” while in the case of Gokarn, “the reason he (the former finance minister) gave was that all of us who entered the RBI laterally had become hostage to the technocrats in the RBI and the government felt it necessary to bring some fresh thinking," Subbarao said.
What did Mukherjee mean when he said RBI top brass became hostage to the institution? Does it mean that they were still supposed to give priority to the interests of the North Block above that of the central bank? One can read between the lines here.
RBI and North Block
Beyond the past instances, Subbarao’s revelations have crucial importance in the current context as well, when the government-central bank relation has yet again made headlines in the wake of RBI governor Raghuram Rajan’s surprising exit statement last month.
Rajan’s farewell letter came after a series of personal attacks from BJP leader, Subramanian Swamy on Rajan’s personal integrity and efficiency in the running of monetary policy operations.
Swamy accused Rajan for not being ‘fully mentally Indian’ and ‘wrecking’ the economy with high interest rates and thus causing unemployment. With the BJP-government remaining non-committal to Rajan’s extension beyond September 2016, the former chief economist of the International Monetary Fund (IMF) made public his decision not to continue at the central bank beyond his term.