Demystifying RBI

Whom Moved My Interest Rate?

Leading the Reserve Bank of India through Five Turbulent Years

Duvvuri Subbarao

Penguin Books, 2016

pp.308. Price: Rs.699.

When Duvvuri Subbarao took charge as the Governor of Reserve Bank of India (RBI) he had two challenges to face –(a) his predecessor Dr. Yaga Venugopal Reddy had left a great legacy as a forward looking but conservative, non-compromising Governor, and (b) the global meltdown triggered by the sub-prime crisis in the United States of America was having its shocks on our economy as well. Subbarao was moving directly from the Finance Ministry into the central bank and many thought that he was chosen to toe the Ministry line. The other candidate up for the position – as we know from Subbarao’s book – was Rakesh Mohan, by then a seasoned central banker, having served as a Deputy Governor. Subbarao was relatively unknown to the finance world. Not many knew what he stood for and if he would stand up like Reddy.

Under normal times, there would not have been such a detailed scrutiny of his tenure. His tenure was one of the most testing in recent times. On balance, the verdict was that he came out as one of the best Governors the RBI had. Unfortunately for Subbarao, he was sandwiched between two formidable personalities. Reddy who had a much larger reputation as a sharp, shrewd and witty Governor whose was endorsed by no less than Joseph Stiglitz as the best person that US Fed did not have, and Raghuram Rajan whose reputation as an economist preceded the governorship. But a fair assessment of Subbarao’s performance as a governor is to be done after shedding the reputational baggage of his predecessor and successor.

The book under review is a remarkable self-assessment. It is candid, clear and opens up the vulnerabilities, loneliness, dilemmas and the doubts that a position of a Governor brings. Subbarao was not the best of orators - his style pales into insignificance when compared to Reddy’s wit and Rajan’s theoretical and philosophical overlays. Even the jokes which he rendered with a deadpan face took time to sink in. But that is not the case with the written word. This book achieves one of the many things that Subbarao set out to do as a Governor – demystify the RBI.  It is a remarkably well written book, with deep introspection of the actions taken during his tenure without any chest thumping. Subbarao uses the distance of time to assess his tenure with a sense of awe and humility. He has a wry sense self-deprecating humour which makes the book even more readable.

While the narrative is personal and introspective, the communication is universal and generalizable. It needs a skilled writer to elevate personal experiences and into insights on a larger framework. Subbarao achieves this effortlessly. He takes us on a tour of the functions of the RBI: monetary policy; inflation targeting; forex management; banking; the developmental role of financial inclusion; non-bank finance companies - all narrated through his personal experiences and anecdotes, but elevating them into generalizable concepts.

The personal style makes the book human – conversations with his wife, the need to step out and take a walk, the awe of the Governor’s residence and the immediate contrast with the poverty around, keeps the book firmly grounded and does not degenerate into aggrandizement.

Subbarao is very candid throughout and does not hold back any punches – whether it is his displeasure about the finance ministry, his differences with Chidambaram and the somewhat irrational effects that it may have had in the functioning of the Reserve Bank. One episode which resonates in contemporary times is the way in which the re-appointment of Usha Thorat as a Deputy Governor was dealt with, undermining the position of the Governor – somewhat similar to the process that the current government followed in finding the successor to Harun Khan who demitted office recently. Subbarao says that “Usha became a part of the price we had to pay for asserting the autonomy of the Reserve Bank”, and continues to express his displeasure on process of considering the re-appointment of Subir Gokarn. The friction with the political class was not only about interest rates and monetary policy, but spilled over.

His predecessor Reddy in contrast has wit and could take any question with a twinkle in his eye and provide an answer that could at one level be diversionary, and at another leave it open to multiple interpretations. Rajan, his successor has used his opportunity to talk to elevate the discourse to issues much beyond the RBI – an interesting strategy of continuing communication without really stirring up the markets. That, Rajan stirred up some other hornets’ nest, is a different matter. That he was not a very flamboyant speaker is (in retrospect) our loss. However, in writing this remarkable book, but he has more than made it up. It is clear that Subbarao was a great team man, respecting and standing by his colleagues and constantly craving to communicate to the outer world.

The only aspect in this book that stands out by its absence is how little Subbarao mentions his predecessor Reddy. Given that Reddy also had famous run-ins with the government, that he was a much respected Governor and he belonged to the same cadre of Andhra Pradesh in their previous avatars as civil servants, one would have expected a much more active exchange of views – but that is not to be found in the book. While there is much warmth for the colleagues and even his successor – Raghuram Rajan, the silence about Reddy is somewhat conspicuous. That certainly does not diminish the value of a wonderful book that takes us through the tumultuous years with a sense of insight and humor.

© M S Sriram |