S Venkitaramanan, former RBI governor, who passed away yesterday, typifies this old English saying. The last four years of his public service were remarkable for their tumult. He retired from the government in 1989. A year later, in December 1990, he was appointed as the 18th governor of the RBI. A month later, in January 1991, India faced a severe balance of payments crisis, with forex reserves down to a mere $1.1 billion. He later said he had sleepless nights wondering where the money would come from to meet India’s obligations.
But in those six months from January to July, when there was only the semblance of a government in Delhi, that too first a minority one and then a caretaker one, it was Venkitaramanan who de facto presided over the economy. He made sure that India didn’t default. By the end of April, after he had overseen the mortgaging of around 50 tonnes of gold to the Bank of England, he sat back and breathed easy once again.
He was lucky in some ways. The caretaker prime minister, Chandrashekhar, was a decisive, non-ideological man. He disregarded the socialist advice from the finance ministry and gave Venkitaramanan the freedom he needed, his wonder to perform. It worked.
Venkitaramanan served as the governor of the RBI from December 1990 to December 1992. Before he retired from the RBI, India was hit by another major crisis, the Harshad Mehta scandal, in which the RBI’s internal bookkeeping was found severely wanting. The scam came to light in April 1991, so Venkitaramanan spent time till his retirement dealing with another crisis of enormous political dimensions. In that sense, his was probably the most eventful governorship in the history of the RBI.
If the crisis of 1992 wasn’t of his making, the one of 1991 was. Not solely but substantially. Earlier, he served as Finance Secretary from 1985 to 1989 under four finance ministers, including Rajiv Gandhi. It was when the prime minister, Rajiv Gandhi, sought to step up the economy’s growth rate. He had been advised by a former governor of the RBI, L K Jha, that this could be done by higher budget deficits. It fell to Venkitaramanan to find the money before the deficit solution was tried.
One of the sources of revenue — during his time as finance secretary that the line between capital and revenue receipts was blurred — that he eyed was the RBI’s reserves. He wanted a larger transfer than the customary ₹250 crore. The then governor, R N Malhotra, refused. So, in the end, Venkitaramanan turned to higher deficits.
In the autumn of 1990, these deficits caused a huge run on India’s forex. As RBI governor, he found the boot on the other foot and had to manage not only the balance of payments situation but also the fiscal situation. Many of his rivals in the IAS, the service he had joined in the mid-1950s, found the irony delicious.
It didn’t matter. Venkitaramanan was the ultimate pragmatist. Solve the immediate problem. The future will take care of itself. It was a buccaneering approach. It worked half the time, which is good enough when managing complexity.