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Who Moved My Interest Rate? Former RBI Governor Questions Pranab, Chidambaram

Former Reserve Bank of India Governor Duvvuri Subba Rao has made public the way finance ministers habitually interfere in the functioning of the country’s apex bank and often leverage the extension of term of governors as a stick to make them fall in line.

In his book titled, "Who Moved My Interest Rate?" published by Penguin Random House, former RBI governor and predecessor of current governor Raghuram Rajan, Subbarao said his own tensure extension was rescued from controversy due to intervention by then PM Manmohan Singh.

Even Raghuram Rajan was either denied extension or sidelined enough not to seek second term, going by the nuances finance ministers employ to straighten the central bank governors. Result, an economic upheaval and falling prey to global machinations of forcing inflation in the country as was done in the Philippines during the 1970s and 1980s.

"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," wrote Subbarao, whose term witnessed the worst global recession and thanks to RBI’s tightening policies, India was less of a victim compared to other Asian neighbours during the period.

He had a five-year tenure from September 5, 2008 to September 4, 2013 and worked with two finance ministers — Pranab Mukherjee and P. Chidambaram.

"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. While Pranab Mukherjee was reluctant to extend his tenure, it was the PMO which intervened and announced the extension while his of two deputies paid the price for the tight anti-inflationary measures taken by the RBI during the period. "Usha became a part of the price we had to pay for asserting the autonomy of the Reserve Bank," he wrote in his book.

When Chidambaram stepped into the shoe of Pranab Mukherjee, another deputy governor Subir Gokurn’s tenure was not extended by Chidambaram, he said.

It may be recalled that Usha Thorat was instrumental in bringing the microfinance sector out of the 2009-10 crisis and institutionalising the entire microfinance sector through RBI guidelines and protective shield. She was also credited for her efforts to highlight the need for financial inclusion when the global economy was undergoing recession and cash crunch.

The book also recounts how Chidambaram tried to ignore him in Mexico for the dinner hosted by the Indian ambassador on the sidelines of the G20 meeting, where he greeted everyone but ignored the RBI governor, reiterating that the government would "walk alone" on growth, if the central bank did not realise the importance of growth.

The former RBI governor has opened a Pandora Box when he said never did the government and RBI were on the same page, despite claims by finance ministers. "I found that all through my tenure, the government was distinctly uncomfortable with the RBI raising interest rates and seemed convinced that monetary policy was choking growth," he said.

Some of the arm-twisting tactics the governments follow to put pressure on RBI governors, according to the book, include:

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