BOOK REVIEW. An interesting account

RBI Governors as a rule seldom speak their mind, although they may give a number of weighty speeches and long interviews. The demands of their job and the compelling need to keep markets and media guessing about their next move do not permit a relaxing of guard and often lead to an opaque and elliptical way of speaking. Constructive ambiguity, they call it.

So, more often than not, you would get politically correct and inane lines accompanied by an elaborate list of hedges, leaving you to interpret whatever you want from their statements. It is therefore refreshing to come across a book by former RBI Governor Duvvuri Subbarao that breaks the stereotype.

Who Moved My Interest Rate? is a fascinating tale from an insider who took important decisions on some of the challenges facing the economy when he led the RBI between September 2008 and September 2013.

It was a turbulent period with the global financial crisis breaking out just at the same time when he was beginning his innings, a ‘baptism by fire’ as he called it. Subbarao stepped into the large shoes of YV Reddy, who had earned a reputation for being autonomous as well as prescient in preparing India for the possible outbreak of such a crisis.

Many issues came to the fore during that period — relating to ‘unconventional’ policy tools, central bank independence, the dominance of fisc, the structural reforms required in the monetary policy formulation, the need for a reliable inflation index, the need for a proper mandate for the central bank to tackle inflation, the differences with the central government, the problems of communication and forward guidance and many more. The book has Subbarao’s well-reasoned take on all these important themes.

Since his tenure coincided with the global crisis at the beginning, inflation problems and high interest rates through the second half of his term and the currency weakening towards the end of his tenure, the public perception of Subbarao would unfortunately be one of hopping from crisis to crisis.

As he notes ruefully, he would have the dubious distinction of being the most ‘activist’ governor by changing interest rates a record 23 times, 13 times upwards and 10 times downwards. Certainly, these moves may have created an impression of him being overwhelmed at various times. It must also be noted that he was preceded and succeeded by articulate and clever governors with a finely honed instinct on how to tackle markets and their volatile reactions — and he perhaps suffered in comparison. He was perhaps fated to carry the cross at a difficult time and bear the price.

In his defence, it can certainly be said that he did what most others would have done in those circumstances — and with whatever inputs were available in real time. He makes the point that critics have the luxury of hindsight whereas a governor often has to make quick decisions, not always with deliberation or with the benefit of good data. He recalls Reddy’s pithy observation that while in other countries the future is uncertain, in India, thanks to faulty data, the past is also uncertain!

Subbarao makes clear that this book is not a defence of his record as governor. The book is a frank account of the behind-the-scenes efforts to address many of the problems and crises of that period. The book does shed light on many matters that only an insider can comment on authoritatively — for instance, his run-ins with the finance ministers he served — Pranab Mukherjee and P Chidambaram.

There was professional courtesy on both sides, but yes, he concedes, there was friction and some clashes between the government and the RBI. While pointing out that both Mukherjee and Chidambaram were always polite and scrupulously courteous in their behaviour, he also shows how they were not above applying psychological pressure on the governor (relentlessly) to get him to toe their line. Sometimes they tried to encroach into regulatory domains covertly, sometimes it was overt.

The modus operandi of these turf wars were subtle and will be an interesting insight for the lay reader not used to bureaucratic games. Perhaps Subbarao’s civil service background (he was finance secretary before becoming governor and had an outside chance of even becoming cabinet secretary) helped detect some of these manoeuvres early enough but not always was he successful in stalling it.

Both the finance ministers always wanted the governor to cut rates which Subbarao steadfastly refused to and in the process earned their ire. This had some unpleasant side-effects. The extensions for deputy governors, Usha Thorat in October 2010 and Subir Gokarn in December 2012, were not given as both Pranab and Chidambaram were annoyed with them as well as with the governor.

Subbarao raises an important question — whether a governor should not have the freedom to have his own team? He debunks the myth that FMs and central bank governors are perennial antagonists because of their differing mandates. He is at pains to correct the impression that central banks don’t worry about growth and are inflation obsessed.

This book will certainly help readers get an idea of the deliberation and agonising that goes behind policy formulation and the many options that are weighed before taking important calls.

Subbarao did much to demystify the RBI and do a difficult job in trying circumstances. His even-toned account of those travails and some personal vignettes make this an excellent addition to the policy literature in the country. This is not the regular tell-all book that would simply throw muck at others and make a case for why the author alone was blameless. It is a clean and honest account, disarmingly frank at many points, which without papering over inconvenient truths, brings them out with great dignity and detachment.

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