UPA ministers wanted RBI to be government cheerleader: Ex-central bank chief

UPA ministers wanted RBI to be government cheerleader: Ex-central bank chief

Former RBI Governor Duvvuri Subbarao said that during Pranab Mukherjee and P Chidambaram’s tenures, the finance ministry used to exert pressure on the Reserve Bank of India (RBI) to lower interest rates and paint a rosier picture of economic growth in his latest book.

Subbarao, in his new book ‘Just A Mercenary?: Notes from My Life and Career’ has highlighted that the UPA government lacked comprehension and appreciation for the importance of maintaining the central bank’s autonomy.

“Having been both in the government and in the RBI, I can say with some authority that there is little understanding and sensitivity within the government on the importance of central bank autonomy,” said Subbarao in the book.

Subbarao served as the finance secretary from 2007 to 2008 before assuming the role of RBI governor for a five-year term starting on September 5, 2008. This tenure started just days before the onset of the Lehman Brothers crisis, which resulted in the company’s bankruptcy on September 16, marking one of the biggest corporate failures in history.

The former governor recalled a particular incident during Pranab Mukherjee’s time as finance minister when government officials opposed the RBI’s estimates and suggested projecting a rosier economic outlook.

“I remember one such occasion when Pranab Mukherjee was the finance minister. Arvind Mayaram, the finance secretary, and Kaushik Basu, the chief economic adviser, contested our estimates with their assumptions and estimates, which I thought was par for the course,” he wrote in the book.

Subbarao expressed discomfort with the idea that the RBI should act as a cheerleader for the government’s policies in a chapter of his book titled ‘Reserve Bank as the Government’s Cheerleader?’

“Mayaram went to the extent of saying in one meeting that ‘whereas everywhere else in the world, governments and central banks are cooperating, here in India, the Reserve Bank is being very recalcitrant,” he recalled.

He mentioned the importance of the RBI maintaining its professional judgement and not altering projections to manipulate public sentiment.

“It also dismayed me that the Ministry of Finance would seek a higher estimate for growth while simultaneously arguing for a softer stance on the interest rate without seeing the obvious inconsistency between these two demands,” he wrote.

In his book, Subbarao detailed his interactions with both Chidambaram and Mukherjee, noting their different approaches but shared desire for softer monetary policies. He recalled instances where Chidambaram publicly expressed disagreement with the RBI’s stance on interest rates.

“Chidambaram typically argued his case like the lawyer that he so eminently is, while Mukherjee was the quintessential politician,” he said in his book.Â

“Mukherjee let his view be known and left it to his officers to argue his case”, he said, adding that “the net result was an uncomfortable relationship”.

The former RBI governor recounted events from October 2012, when Chidambaram resumed his role as finance minister after a stint at the Home Ministry, and aimed to rectify the fiscal extravagance of the previous Mukherjee administration, perhaps to offset the fiscal tightening measures he was initiating.

“So, he very much wanted a softer monetary regime and put enormous pressure on the RBI to lower the interest rate. On objective considerations, I could not oblige him though,” Subbarao wrote.

Subbarao noted that his refusal to back down clearly upset Chidambaram to an extent when he took an unusual and uncharacteristic step of publicly expressing his disagreement with the Reserve Bank’s position.

“In his ‘doorstop’ media interaction outside the North Block about an hour after the Reserve Bank put out its hawkish policy statement, expressing concern on inflation, Chidambaram said (that) ‘growth is as much a concern as inflation. If the government has to walk alone to face the challenge of growth, we will walk alone,” Subbarao recalled.

His memoir also reflects on his career journey, from his early days as a sub-collector to his tenure as RBI governor, offering insights into the challenges faced by emerging economies in a global context.

Subbarao currently serves as a senior fellow at the Yale Jackson School in the US, reflecting on his extensive experience in economic governance.

(With input from PTI)

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