Mumbai: Recounting his stormy relationship with bosses in the North Block, former RBI Governor D Subbarao has alleged that ex-finance ministers P Chidambaram and Pranab Mukherjee interfered in the functioning of the central bank, especially on matters of setting interest rates. According to Subbarao, the differences between the RBI and the then government also led to two of his deputies not getting extensions.
In a 308-page biography titled, ‘Who moved my interest rate? Leading the Reserve Bank of India through five turbulent years’, Subbarao, who was the Governor of RBI from September 5, 2008, to September 4, 2013, said that Chidambaram and Mukherjee, as Finance ministers, often made public their differences with the RBI on decisions on policy rates.
Chidambaram, Subbarao said, even overstepped into the bank’s domain to form a committee on liquidity management.
"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," writes Subbarao, who manned the Mint Road during the global financial crisis.
According to Subbarao, who led the RBI through five turbulent years since the fall of the Lehman Brothers, the pressure on him from Chidambaram and Mukherjee to cut interest rates and his refusal to do so cost him dearly.
"I have been asked several times if there was pressure from the government on setting interest rates. There certainly was, although the precise psychological mechanics of pressure would vary depending on the context, setting and personalities," he has written in the book.
The former bureaucrat-turned-central bank Governor also suggests that Chidambaram had broken a tacit agreement between the government and the RBI to keep such differences behind closed doors and painfully recalls how the then FM rebuked him publicly.
In October 2012, after he left the policy rate unchanged, Chidambaram unveiled a fiscal road map just before the RBI policy meeting.
Not just that, Subbarao recalls, in the chapter titled 'Walking Alone', less than a week after this statement, they were together in Mexico for the dinner hosted by the Indian ambassador on the sidelines of the G20 meeting and Chidambaram "greeted everyone, but pointedly ignored me all through the evening, leaving me with an uncomfortable feeling".
Chidambaram went further and threatened to "walk alone" to "face the challenge of growth" if the central bank did not realise the importance of growth.
He goes on to say that he had to pay the price for not falling in line as the government turned down Subbarao's recommendations to give extension to two of his deputy governors--Usha Thorat during Mukherjee's tenure and Subir Gokarn when Chidambaram returned to the Finance ministry.
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.
"The logic of why the Reserve Bank should compromise its judgement so as to become a cheerleader for the economy never appealed to me," he writes.
Subbarao claimed that in 2011, Mukherjee seemed reluctant to grant him an extension in 2011. However, Prime Minister Manmohan Singh was keen that he should serve a five-year term.
“Has the Finance minister spoken to you about your extension, he (Singh) then asked me, and I said no,” Subbarao recounts Singh asking him as early as July 21, 2011.
“You are doing well at RBI and there is no reason why you should not serve a full five-year term like others. Let me know as soon as the Finance minister speaks to you,” the PM told him.
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.
TKA Nair, then Principal Secretary to the PM, called Subbarao twice between July 28-August 4 to check if Mukherjee had called him and discussed the matter. But there had been no phone call from the FM. On August 9, Subbarao saw news reports on television channels that he had been given a two-year extension.
“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, Nair called Subbarao and congratulated him on behalf of the Prime Minister and on his own behalf.
When the Governor called Mukherjee to thank him, the latter 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.”
Subbarao further claimed that his relationship with Mukherjee, post extension, remained exactly as before.
With Agency Inputs