At a time when the country is waiting to know who will succeed Raghuram Rajan as the Reserve Bank of India Governor, his predecessor Duvvuri Subbarao’s memoirs, revealing a turbulent relationship with two Finance Ministers of the time — P. Chidambaram and Pranab Mukherjee — is slated to hit the stands today.
In the biography titled “Who moved my interest rate?” Mr. Subbarao writes about his five years at the country’s central bank, between 2008 and 2013. His account may cause some embarrassment to a few prominent leaders in the previous UPA government.
The former Governor indicates that the then Finance Minister Pranab Mukherjee seemed reluctant to grant him an extension in 2011. However, Prime Minister Manmohan Singh was keen that he serve a five-year term.
“Has the Finance Minister spoken to you about your extension, he then asked me, and I said no,” Mr. Subbarao recounts Mr. Singh asking him as early as July 21, 2011. Mr. Subbarao’s term was due to come to an end only in the first week of September.
“You are doing well at RBI and there is no reason why you should not serve a full five-year term like others,” Mr. Subbarao recounts Mr. Singh as telling him. “Let me know as soon as the Finance Minister speaks to you,” the Prime Minister reportedly said.
The Prime Minister’s office then started to follow up with the Governor, asking if he had heard from the Finance Minister about the extension. T.K.A. Nair, then principal secretary to the Prime Minister, first called on July 28, 2011, and then again on August 4 to check if Mr. Mukherjee had called. But there had been no phone call from Mr. Mukherjee.
And then on August 9, Mr. Subbarao saw news reports on television channels that he had been given a two-year extension. He initially dismissed the reports as media speculation, he writes.
“My logic was that the Finance Minister, or at any rate, someone high up in the government would call and give me the news before putting it out in the public domain,” he writes.
Soon after, Mr. Nair called Mr. Subbarao and congratulated him on behalf of the Prime Minister and on his own behalf.
When the Governor called Mr. Mukherjee to thank him, the latter reportedly said: “Oh, that was just a formality. You’ve earned the extension by your own performance. There was never any question of replacing you at this stage. All the best.”
Media specualtionThe former Governor writes the fact that the announcement came from the PMO (on its website), and not the finance ministry, gave rise to media speculation that the PMO had overruled the finance ministry on the issue. “I am no wiser than anyone else…whether the Prime Minister prevailed over the Finance Minister’s opposition.”
However, his relationship with Mr. Mukherjee – post his extension – remained exactly as before; “He continued to be friendly and gracious, just as before, and he continued to be upset with my interest rate policies, just as before.”
The former bureaucrat-turned-central banker also shared an uneasy relationship with another Finance Minister – P. Chidambaram. Mr. Subbarao was appointed when Mr. Chidambaram was heading the finance ministry.
Early in his tenure, in October 2008, Mr. Subbarao said he was ‘annoyed and upset’ by the Finance Minister’s decision to constitute a liquidity management committee headed by finance secretary Arun Ramanathan, without consulting him.
“Chidambaram clearly overstepped into 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,” he writes.
Mr. Subbarao also refers to Mr. Chidambaram’s observation on the relationship between Finance Ministers and the RBI in his column that appeared in the Indian Express newspaper in August 2015, where the former Finance Minister wrote: “There is a view among commentators that finance minister and the central bank governors are always at loggerheads. That view may make an interesting copy, but it is far from the truth. On 8 out of 10 monetary policy statements or actions, the government and the RBI will be, and in the past have been, on the same page.”
However, Mr. Subbarao demurs. “Chidambaram was Finance Minister for far longer than I was Governor. The ballpark average he cites – agreement 8 out of 10 times – may be his experience, but certainly it does not accord with mine. I found all through my tenure, the government was distinctly uncomfortable with the Reserve Bank raising interest rates and seemed convinced that monetary policy was choking growth.”
‘Walking Alone’There is an entire chapter in the book — ‘Walking Alone’ — devoted to disagreements with the Finance Minister following the famous public spat with Mr. Chidambaram when the Finance Minister said the government will walk the path of growth alone after being disappointed by RBI’s decision not to reduce interest rates.
Mr. Subbarao cited another instance, of the June 2013 policy review, when the former Finance Minister wanted him to cut the cash reserve ratio — the proportion of cash banks need to set aside with RBI.
However, Mr. Subbarao did not oblige since the rupee was under pressure due to the ‘taper tantrum.’
“He called me up and we had our usual disagreement,” Mr. Subbarao writes.
And there was a price to be paid for asserting autonomy, he writes, referring to the government’s decision not to extend the tenures of Deputy Governors Usha Thorat and Subir Gokarn, against his wish.
The government tried to change the rules of the selection process (during the reappointment of Mr. Gokarn) by disallowing the selection committee to rank the candidates. The selection committee, which was headed by Mr. Subbarao, had put Mr. Gokarn’s name at the top of the list. The former Governor, however, acknowledges that it was Mr. Chidambaram who was ‘more actively sponsoring’ his candidature for the governor’s post in 2008.
