The Reserve Bank of India should move forward on further internationalisation of the rupee, says former RBI Governor Duvvuri Subbarao. It should be less interventionist in the foreign exchange market, Subbarao told businessline during a promotion drive for his latest book ‘Just a Mercenary?—Notes from my life and career.

Subbarao recalled the advice given by Prime Minister Narendra Modi during the central bank’s 90th birthday celebrations event where he asked the RBI to make the rupee more internationally acceptable. 

“Many things have to fall in place for that to happen. One of the things we have to do is actually remove capital controls and RBI to become more hands off,” Subbarao, who was RBI Governor between 2008-13, said. 

Asked if he felt the time had come to remove capital controls, Subbarao said it was a journey. Subbarao highlighted that even the IMF has now agreed that full capital account convertibility is not the holy grail. “Emerging economies like India can decide on their own roadmap for capital convertibility. But we should be moving forward,” Subbarao said.

“I don’t want to pass a judgment or an opinion on what the RBI has been doing or has not been doing, but I want to say that the forward movement is for the RBI to be less interventionist,” he stressed

Demystify Budget

Subbarao also said there is a pressing need for the government and the financial sector regulators to do more to ‘Demystify’ the Budget and its economic policies at a level the general public can understand. 

As an example, he cited GST. “There is no point in just saying GST has gone up to over ₹2-lakh crore in April 2024 and it was saying ₹1.4-lakh crore in September 2023, and it has gone up to ₹2-lakh crore in six months. But why has the GST gone up? Who is paying for it? Can it come down or go up in future? If you are giving away these collections as transfer payments, how much is spent on farmer welfare, how much is spent on education, rural or health infrastructure? All these need to be communicated as well,” Subbarao said. 

“If you communicate at the level people understand, the feedback will not only help in decision making, it will improve governance, it will improve the political prospects of the party in office,” he added.

BoE’s practice

He highlighted that the Bank of England had started a practice of townhall meetings — explaining to people what the central bank is doing and how it impacts their lives. “This is being done so that people can demand accountability. Accountability is the core of democracy. Demystification and dissemination are particularly important in a low awareness and low literacy levels country like ours,” Subbarao added. 

The demystification should be done not just about the budget, but about everything else as well. “For example, in the case of FDI, we left it to the media to disseminate why there was a dip last year but the government itself did not go out and say what it is. Another current issue is on freebies. Every major political party and regional party today are in freebies business. Nobody is asking where this money is going to come from. People should know the opportunity cost of the freebies,” Subbarao said.