Ex-Governor Subbarao alleges pressure from Pranab Mukherjee and Chidambaram on RBI's growth portrayal
- In Reports
- 03:09 PM, Apr 16, 2024
- Myind Staff
Former RBI Governor Duvvuri Subbarao asserted in his memoir that during his tenure, the Finance Ministry, led by Pranab Mukherjee and P Chidambaram, exerted pressure on the central bank. They aimed to persuade it to lower interest rates and portray a more optimistic view of economic growth to boost market sentiment.
In his recent book titled 'Just A Mercenary?: Notes from My Life and Career', Subbarao highlights that the government displays limited understanding and sensitivity towards the significance of the central bank's autonomy.
In his book, Subbarao stated, "Having served in both the government and the RBI, I can assert that there is a lack of understanding and sensitivity within the government regarding the significance of central bank autonomy."
Subbarao served as finance secretary from 2007 to 2008 before assuming the position of RBI governor for five years starting from September 5, 2008. In a chapter entitled 'Reserve Bank as the Government’s Cheerleader?', he recollected that the government's pressure extended beyond the Reserve Bank's interest rate policies.
Subbarao recounts instances when the RBI faced pressure to provide optimistic forecasts of growth and inflation, contrary to its independent evaluation. "I recall a specific incident during Pranab Mukherjee's tenure as finance minister. Arvind Mayaram, the finance secretary, and Kaushik Basu, the chief economic adviser, challenged our assessments with their own assumptions and projections, which I considered typical," he writes.
Subbarao expressed his dismay at the suggestion that the RBI should act as a cheerleader for the government, particularly when discussions shifted from objective arguments to subjective considerations. He recalled instances where government officials pushed for higher growth projections and lower inflation rates to boost sentiment, despite the inconsistency between these demands.
The former RBI Governor asserted that he consistently maintained the stance that the central bank should adhere to its best professional judgment and not alter projections merely to manipulate public sentiment. He emphasised that projections must align with the bank's policy stance, as adjusting estimates for growth and inflation would undermine the credibility of the Reserve Bank.
Subbarao also recounts clashes with both Chidambaram and Mukherjee over the RBI's policy stance, noting their differing approaches. Chidambaram, he observes, presented his arguments in a lawyerly manner, reflecting his legal background, while Mukherjee approached discussions in a manner typical of a seasoned politician.
Mukherjee conveyed his stance indirectly through his officers, leading to a strained relationship. Chidambaram, upon returning as Finance Minister in 2012, sought a softer monetary policy to counteract fiscal tightening efforts, pressuring the RBI to lower interest rates. However, Subbarao resisted due to objective considerations.
Image source: The Print
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