Reddy and Chidambaram — Embrace of the gladiators

It was raining compliments in Chennai last weekend and from two unlikely protagonists. The occasion was the release of a book, Global Crisis, Recession and Uneven Recovery by Dr Y.V. Reddy, former RBI Governor. The Chief Guest was Mr P. Chidambaram, who while he was Finance Minister, had on many occasions disagreed with Dr Reddy. For those hoping to hear of stormy battles, fisticuffs and blood on the carpet, there was only disappointment.

Mutual admiration

Instead, it was a ‘mutual admiration society' at work. Mr Chidambaram heaped praises on Dr Reddy calling him “one among the brightest intellectuals living in India today” and also “the most eminent central banker of the last decade across the world.”

He added, “Venu prepared the country well for the crisis. He recognised that there was an increase in aggregated demand and he took steps on the monetary side with a careful and calibrated increase of repo and reverse repo rates. Then when inflows of foreign capital started increasing he started the market stabilisation fund for mopping up the resultant liquidity and didn't allow the government to use it…. When he left the RBI on the 6th September 2008, did he have a premonition? For, the crisis hit on September 15, 2008.”

Choice for Governor

Mr Chidambaram also took credit for sending Dr Reddy to the RBI as Deputy Governor in the 90s during his earlier term as Finance Minister. He said, “He was too bright, too capable. I felt he should not be confined to the four walls of the North Block. I was afraid that he would end up as Secretary, Sports & Youth Affairs! I requested him to go as Deputy Governor of RBI. I haven't asked him whether he has forgiven me for that. But it is from then on, that others began to recognise his contribution. He was the obvious choice to be Governor in 2003.”

He asked rhetorically, “Is managing central bank science or art?' and then answered himself, “The jury is out on this. But central banking requires very deep understanding of quantitative economics, forex markets, commodities markets, flows of capital and the behaviour of political government, among others. If one of the actors had been a wrong person, we would have met the fate of many other countries. Among the wise and intelligent people advising government, the foremost among them was YV Reddy.”

He continued, “No one can grasp as much in such a short space of time. He is very quick on the uptake, with great writing and drafting skills. He can state the most complex things in a few precise sentences. He has been a tower of strength for every one of us.” Mr Chidambaram also said that Dr Reddy helped him decipher what Alan Greenspan (known for deliberate opaqueness) was saying during the World Bank and IMF meetings. Chidambaram also paid tribute to Dr Reddy and his predecessors at the RBI for their unimpeachable integrity.

Healthy Quarrels

Mr Chidambaram conceded that the Governor and the Finance Minister do quarrel from time to time, but hastened to add that these were ‘healthy quarrels.' He said, “If one of them did not disagree, then something is wrong with one or the other or both. It is a clash of ideas that brings clarity to what needs to be done.”

When it was Dr Reddy's turn to speak, he wasn't shy of returning the compliments. He agreed partly with Mr Chidambaram's observation that a Governor's life was easier and jokingly said that when inflation was up, they would hold the Government responsible and when it was down, the central bank would take the credit.

And then went on to describe the experience of dealing with Mr Chidambaram as an ‘intellectual treat.' He added, “One has to be prepared while meeting the Minister.”

Permitted independence

And referring to the various questions raised at different points of time about RBI independence, Dr Reddy said with trademark wit, “Yes, the RBI is independent. I have the permission of my Finance Minister to say so.” He went on to say that while in terms of law, RBI was one of the least independent, in terms of actual functioning, there has been considerable freedom. He said that there was a lot of autonomy given and confessed that he also grabbed it at times. Sometimes he didn't succeed. Sometimes he got it after argument and discussion. He signed off the evening by saying, “coordination between the central bank and the Finance Ministry is important; agreement is not important; perhaps disagreement is important.”

So, they did agree to disagree after all.

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