Reddy-made central banking

The much-awaited autobiography of YV Reddy, RBI Governor between 2003 and 2008, should be made mandatory reading for all those who work in senior capacities at both the RBI and ministry of finance, indeed for all future finance ministers.

In popular perception — fed and oiled by the media — finance ministers and RBI Governors seem to have goals that are not always aligned with each other. Finance ministers usually want growth — and quickly at that, whereas the central bank governors worry about inflation and whether the pace of growth can some times exacerbate problems in a resource-starved country.

There is always some mutual give and take, and for the sake of harmonious functioning of the great institutions, a spirit of compromise needs to underlie their relationship. What can happen if the legitimate concerns flagged by the RBI Governor and the economic bureaucracy are ignored is something the country has seen in 1991 as well as 2012-13.

Reddy’s book — Advice and Dissent: My Life in Public Service — brings home these lessons once again, from the perspective of one who was an insider with a ring-side view, after having served in various important and senior roles in the Indian Administrative Service (IAS) during the 1991 turbulence.

For the past decade and more, there has been an expectation amongst the intelligentsia that the RBI Governor should be ‘independent’. When he was the governor, Reddy would always joke that he was “fully autonomous” and had the finance minister’s “permission” to say so.

Also, the remark that autonomy is never granted, it has to be grabbed! In his introductory remarks in the book, Reddy says that an RBI governor has to exhibit confidence — neither exuberance nor diffidence. Elaborating, he says the RBI is not equal to the Government of India, but must convince others that they are not subordinate to it.

Those words must be carved in gold — or at least in a plaque at the RBI Governor’s desk for future reference and as a regular reminder.

Hailing from a modest family background, Reddy rose through the ranks of the bureaucracy to reach the pinnacle in economic affairs administration through his own inclinations, hard work and dollops of good luck.

The timing too was important. Reddy didn’t want the job of the RBI Governor, preferring to remain in Washington as the Indian representative to the IMF where he could also be with his children. Still he was persuaded to take the job and he yielded to the call of duty.

As he notes wryly, if he had demitted office a few months earlier than September 2008, he would have been forgotten or if he had done it a few months later, he would have probably been castigated. The global financial crisis broke out a week after he left office and all the caution that he had exercised earlier suddenly became the wisdom that the world needed.

To retire at your peak and to be hailed as a messiah by all those who were critical earlier was probably the perfect sayonara. Of course, one more act from Reddy was to follow as chairman of the 14th finance commission that recommended a landmark increase in States’ share of revenues. The praise from President and former finance minister Pranab Mukherjee at the end of the last chapter is a fitting epitaph for a glorious career.

The first few chapters of the book relate to Reddy’s growing up years — his becoming a bureaucrat, the training he gets under wise mentors, the experience of dealing with enlightened political leadership in Andhra Pradesh including Vengala Rao and NTR, and various problems that he encounters, all of which go towards shaping his economic outlook.

Later, his career takes Reddy to Delhi where he gets a chance to put into practice his learning at the Department of Economic Affairs, gaining experience in negotiating with World Bank, and other assignments that would come at regular intervals.

Reddy details his experience of working with various RBI Governors and ministers, highlighting their strengths and working styles. The one thing that comes out clearly is the country’s extraordinary run of luck in having exemplary men run both the RBI as well as the finance ministry.

His predecessors Bimal Jalan, C Rangarajan, S Venkitramanan and finance ministers Yashwant Sinha, Jaswant Singh and P Chidambaram come out of this book with their reputations enhanced.

Yes, there are differences between them and Reddy, and in a couple of instances YVR was tempted to put in his papers. Once the PM himself intervened with deep concern. The disagreements were settled or allowed to recede for a while, even if there was immediate annoyance on either side.

The one issue where he is at loggerheads with the finance ministers of either party is on the opening up of the banking sector to foreign banks.

Having seen the havoc that it has created in other geographies as well as the kind of political and diplomatic pressure such banks bring to play, thereby undermining regulatory efforts, Reddy was in no mood to relent — despite many hints from the ministers.

He uses all the wiles and guiles of a career bureaucrat, stymieing even a Budget announcement regarding opening up, that should have normally been a fait accompli.

By delaying the process through a roadmap, he gave the Indian banking sector extra time to get ready for globalisation. But as YVR will concede readily, even he could not play God.

If you look at the Indian banking sector today, one can only say that his good intentions may have brought bankers a temporary reprieve — but they have found other means to drive themselves down.

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