D. Subbarao winds up five turbulent years as RBI Governor; a period that he admits saw ‘not a single week of respite’. He began his tenure in September 2008 just as the Lehman crisis began unfolding, causing a worldwide seizure of credit markets, followed by a recession. As he demits office, India is grappling with another crisis.

Looking at the state of the currency (new lows) and inflation (rising again), it may be tempting to judge him harshly. Economic growth has slowed down to its lowest level in a couple of years. That’s not a happy denouement to his tenure. Despite his best intentions, the policies he unveiled did not yield the desired results always.

‘Governor is human’

He may have been a bit unlucky here. In his defence, it can certainly be said that he had to make many judgment calls. And as he has acknowledged self-deprecatorily more than once, even the Governor is human and cannot know everything. The contrarian trends among different data points, the quality of the data itself and its frequent revision in succeeding months seldom made these calls easy or the consequences clear.

If the results didn’t materialise in the manner envisaged, it was also because there were other forces at work.

Subbarao was only one of the many dramatis personae in an expanding cast of players and events. Although his role was pivotal, he was not entirely free of constraints, like most economic agents.

To provide a metaphor, imagine the economy as a car being driven with just the brakes in his control while the steering, gears, accelerator, signals and other controls were in different hands – with the accompanying cacophony as every one chipped in with their two bit of advice of how to drive the car.

Subbarao came to the RBI at a particularly difficult time. The fact that he was earlier the Finance Secretary (though a positive) was viewed with suspicion. He was also succeeding Y. V. Reddy, a man whose reputation grew larger than life as an independent central banker who prevented India from falling into the crisis with his pre-emptive steps. These were large boots to fill and Subbarao can be excused for feeling overwhelmed and anxious about not failing.

Fire-fighting mode

With practically no time to settle in, he had to straightaway move into fire-fighting mode, unwinding rapidly some of the steps taken by his predecessor in those extraordinary weeks during the winter of 2008.

Repo rate, the RBI’s key policy rate was cut by a whopping 425 basis points to 4.75 per cent, while cash reserve ratio (the money parked by banks with RBI) was cut by 400 basis points to 3.25 per cent, in just seven months between October 2008 and April 2009.

But the storm clouds had begun gathering once again. The ‘fiscal stimulus’ provided by the Government saw a spending spree that saw government borrowing shoot up three-fold in just one year.

At this point, he sounded his warning notes regularly and began hiking rates when he saw inflation moving up and remaining unyielding. The 13 consecutive hikes in repo rates, in instalments of 25 basis points called ‘baby steps’, (which he acknowledged a shade ruefully would stick to him as a moniker) may now seem, with the benefit of hindsight, a bit too slow.

But as he explained then and later, he did it slowly because he did not want to choke growth. And perhaps what critics also often forget is that the baby steps were happening every 45 days.

Standing his ground

For someone who has been a bureaucrat, his tenure was surprisingly marked by many differences with the Government — with the principal bone of contention being his refusal to cut rates to the extent desired, as long as inflation remained high.

He resisted the entreaties of industry, the Finance Ministry, an assorted range of busybodies in Delhi and, of course, his own technical advisory committee. He did it with grace and patience, explaining his stance repeatedly and without saying anything dishonourable about the government.

Without providing ‘sound bytes’, he still increased the tempo of communication from the central bank and tried to inculcate a culture of transparency. In particular, his attempt to provide ‘forward guidance’ to markets while making it clear that he was retaining his options to act differently, were notable innovations.

While remaining steadfast to the idea of autonomy of the central bank, he was also ready to make the RBI accountable to Parliament and suggested the institution of regular testimonies before parliamentary committees on the lines of that done in the US now.

Chidambaram may have unwittingly paid him and his tribe a tribute a year ago, when he said that ‘The Government may have to walk the path of growth alone.’ Looked at it in isolation, the comment is a bit unfair even to the RBI — since they are not against growth, as Subbarao has clarified many times.

In standing up to the Finance Minister and for his institution (RBI) in his own quiet way, he may have made his most significant contribution to central banking.

He bequeaths a good tradition to his successor. The RBI and the country have been well-served by this scholarly, thoughtful, modest and dignified man. Posterity will be kinder to him.

> vageesh.ns@thehindu.co.in