D Subbarao's memoirs: Why PM Modi must read the book closely - Firstpost

D Subbarao's memoirs: Why PM Modi must read the book closely

Former Reserve Bank of India governor D Subbarao has written a tell-all memoir of his tenure at the central bank that is likely to ruffle a few feathers in the United Progressive Alliance and also is a must-read for the present prime minister Narendra Modi and finance minister Arun Jaitley. The book titled Who Moved My Interest Rates is slated to be released today.

Subbarao was the predecessor of Raghuram Rajan and served at the RBI during 2008-13. His tenure began just after the global financial crisis broke out and ended after the US central bank hinted at a possible tapering of its easy money policy, sending shock waves through the financial markets of the emerging economies.

Duvvuri Subbarao. Reuters

Duvvuri Subbarao. Reuters

Subbarao raised interest rate 13 times from 2009 to 2012 and cut it just once by 50 basis points April 2012.

He had traversed one of the most difficult times in the global economy as the easy money from developed countries poured into the merging markets pushing inflation and the European debt crisis unfolded as a consequence of the financial turmoil.

According to media reports, he has given a revealing account of his relationship with earlier finance ministers P Chidambaram and Pranab Mukherjee.

From the excerpts available in the newspapers, it is clear that the central bank had to fight hard against the government's interference during the UPA's tenure to guard its autonomy in rate decisions.

His memoirs assume significance because it comes at a time when a controversy is raging over the new governor's appointment at the RBI. There are also concerns that the government is likely to get its own man at the central bank, which will tantamount to surrendering whatever little autonomy it enjoys now.

Stress factors

One of the constant ground for tension between the RBI and the government has been the role of the central bank in inducing growth. The question has been whether it should support growth or guard inflation.

The debate seemed to have settled down with the RBI under the present governor, Raghuram Rajan  who has devised a framework for monetary policy and setting inflation targets as a prime function of the central bank.

However, Rajan came under attack from BJP legislator Subramanian Swamy and the government hesitated to support him for holding interest rates high to tame inflation. It was clear that the ruling party was not happy with him. Essentially, the present tension between the RBI and the government is a just an extension of what happened under the UPA regime.

Here are some excerpts from the book as reported in various newspapers:

1) Both Chidambaram and Pranab Mukherjee were piqued by the Reserve Bank’s tight interest rate policy on the ground that high interest rates were inhibiting investment and hurting growth.... The logic of why the Reserve Bank should compromise its judgment so as to become a cheerleader for the economy never appealed to me. 

2) I was annoyed and upset by this decision (in 2008 to appoint a liquidity management committee under then finance secretary Arun Ramanathan). Chidambaram had clearly overstepped into the RBI turf as liquidity management is a quintessential central bank function. Not only did he not consult me but he had not even informed me of this before the notification was issued... Little did I know that this set the tone for what would be an uneasy relationship between us in the last year of my term. (The Indian Express and The Times of India)

3) In a chapter titled 'Walking Alone', Subbarao recounts the famous Chidambaram statement that "if the government has to walk alone to face the challenge of growth, we will walk alone". The statement was made after Subbarao refused to budge under pressure to cut rates. He had already cut the rate by 50 bps in April 2012. After making this statement, Chidambaram even went on ignore Subbarao at a dinner meeting in Mexico, "leaving me with an uncomfortable feeling". (The Indian Express)

4) In another chapter, Subbarao recounts how he got the support of prime minister Manmohan Singh while then finance minister Pranab Mukherjee seemed to be not too much in his favour. The time was when the Subbarao first term was about to end (much like Rajan's now). Has the Finance Minister spoken to you about your extension, he then asked me, and I said no. You are doing well at RBI and there is no reason why you should not serve a full five-year term like others, Subbarao remembers the prime minister telling him adding, Let me know as soon as the Finance Minister speaks to you. However, he doesn't throw any light on who actually reappointed him - the PMO or the finance minister. He says whoever it was, his relationship with the finance minister continued to be exactly as before. This is in stark contrast to what happened to Rajan. After Swamy started attacking him, nobody from the government came forward to defend him. Whatever minor support he got was a delayed  and cannot be considered as such.


Clearly, the NDA, which has always reiterated that the government and the RBI are on the same page many times over, is not different from the UPA. If anything, it is only worse. How else can one justify Rajan's decision to not continue at the RBI?

It is to be noted that despite the differences Subbarao had with the North Block, Manmohan Singh was graceful enough to support his second term. Maybe Modi should read the book closely and take a lesson or two from the former prime minister on how to deal with the central bank.

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