## Former RBI Governor Subbarao's Memoir Reveals Pressure from Finance Ministry
Notes from My Life and Career," former RBI Governor Duvvuri Subbarao claims that the Finance Ministry, under the leadership of Pranab Mukherjee and P. Chidambaram, exerted pressure on the central bank to manipulate interest rates and present an overly optimistic picture of economic growth.
Subbarao, who served as Finance Secretary from 2007-2008 before becoming RBI Governor in 2008, argues that the government lacked understanding and sensitivity towards the importance of central bank autonomy. He recounts instances where the Finance Ministry not only pressured the RBI on interest rate decisions but also attempted to influence growth and inflation projections.
One such incident involved then-Finance Minister Pranab Mukherjee and his team, who challenged the RBI's assessment and pushed for rosier estimates. Subbarao found this particularly concerning as the discussion shifted from objective arguments to subjective considerations, with suggestions that the RBI should inflate growth and downplay inflation to bolster public sentiment.
Subbarao further describes his discomfort with the Finance Ministry's contradictory demands for both higher growth projections and lower interest rates, highlighting the inconsistency between these two objectives. He maintained a firm stance, emphasizing that the central bank cannot compromise its professional judgment to manipulate public sentiment.
Subbarao also details his encounters with both Chidambaram and Mukherjee regarding the RBI's policy stance. While their styles differed, both ministers advocated for lower interest rates. Chidambaram, known for his legal background, presented his arguments persuasively, while Mukherjee conveyed his views more subtly through his officers.
Subbarao recalls an instance in 2012 when Chidambaram, upon returning as Finance Minister, sought to reverse the fiscal profligacy of the previous regime and pressured the RBI for a looser monetary policy. Subbarao's refusal to comply reportedly led to public disapproval from Chidambaram, who expressed his concerns about growth and the government's willingness to tackle the challenge alone.
Subbarao's memoir sheds light on the complex relationship between the RBI and the Finance Ministry, highlighting the challenges faced by the central bank in maintaining its autonomy and adhering to its professional judgment amidst external pressures.