In scathing comments on his bosses in the North Block, former RBI governor Duvvuri Subbarao has alleged in his new book Who Moved My Interest Rates that former Finance Ministers P Chidambaram and Pranab Mukherjee interfered in the functioning of the central bank.
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While one can regret the way the NDA government handled the Raghuram Rajan exit, with Subramanian Swamy going after him personally for “not being mentally fully Indian”, one thing is clear: Chidambaram and Mukherjee too behaved abominably with the RBI Governor of their time.
The book should serve as a reminder to the present day Modi Government about earlier mistakes in failing to acknowledge the constitutional importance of the central bank and how it can be risky to repeat them.
“Not only did he not consult me but he had not even informed me of this before the notification was issued”, he claimed.
“Usha became a part of the price we had to pay for asserting the autonomy of the Reserve Bank”, Subbarao writes.
Another major instance Subbarao highlights in his book occurred when the then finance minister, Pranab Mukherjee, nearly announced the monetary policy an hour before the central bank was to announce the same.
Soon after, Nair called Subbarao and congratulated him on behalf of the Prime Minister and on his own behalf. The government wanted RBI to project a higher growth rate and a lower inflation rate in order to help the government in “shoring up sentiment”.
Subbarao also reflects on how he found some statements by Chidambaram, upset over the central bank’s refusal to cut rates, unusual and uncharacteristic – specifically over the minister’s statement: “If the government has to walk alone to face the challenge, we will walk alone”.
On the styles of Chidambaram and Mukherjee, Subbarao writes that that Chidambaram would always meet him alone, whereas meetings with Mukherjee were more formal and larger in setting with all the secretaries of the finance ministry and advisors.
Just a day before the policy meeting, Chidambaram took the battle forward by unveiling the government’s road map for the fiscal deficit in a hurriedly convened media conference.
Rebutting Chidambaram’s claim that “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” (quoting from his August 1, 2015 column in The Indian Express, Monetary Policy Committee: Vote or Veto?), Subbarao writes: “The ballpark average that he cites – agreement eight out of ten times – may be his experience, but it certainly does not accord with me”.
Subbarao recalls that throughout his five-year term, the government was very uncomfortable with the RBI for raising interest rates and blamed this for falling growth rates.
But it is very unlikely that the new governor would change the RBI stance on the inflation outlook, especially when risks to inflation are at play in view of the rising food and vegetable prices. “You saw the CPI numbers just last week – 5.8 per cent is the CPI inflation, our policy rate is 6.5 per cent”, he said. “Has the finance minister spoken to you about your extension? asked the PM”.
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“I am no wiser than anyone else on the first question on the second question, I must say that my relationship with Mukherjee remained exactly as before”.
