Subbarao was finance secretary (2007-08) before taking over as the governor of the RBI for five years on September 5, 2008.
In his recent book ‘Just A Mercenary?: Notes from My Life and Career’, Subbarao writes that there is ‘little understanding and sensitivity’ in the government on the importance of the central bank’s autonomy.
Former RBI Governor Duvvuri Subbarao has claimed, in his memoir, that the Finance Ministry under Pranab Mukherjee and P Chidambaram used to pressurise the central bank to soften interest rates and present a rosier picture of growth to shore up sentiments.
In his recent book ‘Just A Mercenary?: Notes from My Life and Career’, Subbarao writes that there is ‘little understanding and sensitivity’ in the government on the importance of the central bank’s autonomy.
Subbarao was finance secretary (2007-08) before taking over as the governor of the RBI for five years on September 5, 2008. In a chapter titled ‘Reserve Bank as the Government’s Cheerleader?’, Subbarao recalls that pressure by the government was not confined to the Reserve Bank’s interest rate stance.
On occasion, he writes, it extended to pressuring the RBI to present rosier estimates of growth and inflation at variance with our objective assessment. “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 writes.
“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 recalls.
Subbarao says he was invariably discomfited and annoyed by this demand that the RBI should be a cheerleader for the government. “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 writes.
Subbarao also writes that he had run-ins with both Chidambaram and Mukherjee on the RBI’s policy stance as both of them pressed for softer rates although their styles were different. “Chidambaram typically argued his case like the lawyer that he so eminently is, while Mukherjee was the quintessential politician.”
Mukherjee let his view be known and left it to his officers to argue his case, he says, adding that “the net result was an uncomfortable relationship”.
The former RBI governor recalls that in October 2012, shortly after Chidambaram returned as Finance Minister from the Home Ministry, he set about in earnest to reverse the fiscal profligacy of the Mukherjee regime, possibly to compensate for the fiscal tightening he was embarking on.
“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 writes.
“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 recalls.
(With inputs from PTI)