How ex-RBI governor Subbarao walked a tightrope between dharma and political masters
I was sipping tea nervously as I checked the clock. Our camera was set, the evening light was beaming in from the corner window as we did one last sound test before our guest walked in.
Dressed in his trademark black jacket, adjusting his spectacles standing in front of me was the man whom I had followed as a Reserve Bank of India (RBI) reporter in Mumbai.
He was a different Dr Duvvuri Subbarao then, surrounded by his deputies, and shouldering the heavy weight of steering the Indian economy amid global a crisis.
"There was one crisis after another," said Subbarao, former RBI governor, as he recalled his time in the office.
Now a 66-year-old academician shuttling between Singapore and India, Subbarao clearly remembers how he hardly had time to celebrate his appointment at the RBI on September 5, 2008.
"The Lehman crisis broke out 10 days after I became the governor. Inflation had been stubborn for a decade. We had the rupee exchange problem. Managing the crisis was a challenge, it tested my leadership and ability to cope up with the rapidly changing situation. But what kept me going was competence of the RBI and the inner call to listen to everyone, but ultimately you take a judgement call based on larger public interest and stand by your dharma," he said.
A physicist from IIT Kanpur and economist at the World Bank, he was handpicked for the RBI top job by then finance minister P Chidambaram.
But the warm relationship they shared in North Block changed, and how.
Now in a lighter mood, Subbarao shares an anectode about how Chidambaram gave him the cold shoulder after an RBI policy announcement wherein he refused to cut rates. Chidambaram told the media that the "government will walk alone if it wants to".
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| Raghuram Rajan shares a light moment with Duvvuri Subbarao. |
"His statement was symptomatic of differences between the RBI and the government. To some extent, these differences are inherent in how the central bank and the government are structured. Central banks typically pursue price stability in the hope that it would ensure long-term growth. But governments, specially in democracies, are driven by the need to show short-term results," Subbarao said.
During his stint at the RBI, he was known to be a man who stood his ground and dared to disagree with the political masters in Delhi.
He knew his "RBI dharma", as he likes to call it, was to stabilise the Indian economy and keep inflation under check with laser sharp focus on growth.
"The government was very clear about what it wanted the RBI to do, and did not step back from communicating its view. The tension between the RBI and the government is inherent because of different horizons. But I hope I did my dharma and remained honest to my conscience," Subbarao added.
He was succeeded by IMF economist Raghuram Rajan, who was then the chief economic adviser.
Rajan brought to the office effusive charm and ready communication skills, which Subbarao thinks was his weakness.
"There were some communication missteps, like when I had raised interest rates to defend exchange rates, I said the 'RBI is sensitive to growth concerns'. But that was taken as miscommunication, because the market expected the governor to say, 'I was fully committed to defending exchange rates exclusive of all other concerns'," he admitted.
While Subbarao refused an extension of his term after five years, Rajan was quick to learn from his predecessor's mistakes.
Unlike Subbarao, who first reduced interest rates when he came in office and then faced the inflation brunt, Rajan kept a hawk's eye on inflation, pegging a target for the RBI to follow during monetary policy decisions.
To avoid rupee tantrums that Subbarao faced, Rajan started building forex reserves that helped India tide over the recent Brexit volatility.
Rajan even cracked the whip against errant public sector banks over the burgeoning bad loans that he said had been ignored by his predecessors so far.
Subbarao hits back at allegations of going soft on public sector banks as they continued to dole out loans with little guarantee, or plans to recover them, to the private sector, resulting in pile up of non-performing assets (NPA).
"There were many causes for the NPA problem. Certainly, stricter supervision by the RBI would have helped. Certainly restructuring was done, in the middle of the crisis when restructuring of liquid accounts, certainly insolvent accounts, could have been restructured. And there was crony capitalism. NPAs are a result of all these factors," said Subbarao.
For a man who knows the pressure on Mint Road, he hopes that history judges him with a kind heart as he passes on the wisdom from his office to Rajan's successor.
"Keep an open mind, listen to everyone with respect and deference, listen to the government as well because it is the big stakeholder, but in the final analysis, take a decision which is in the larger interest, because ultimately you are answerable to your conscience," he said.