A Tale of Pressure and Autonomy
Notes from My Life and Career," former RBI Governor Duvvuri Subbarao reveals the pressure he faced from the Finance Ministry under Pranab Mukherjee and P Chidambaram to manipulate interest rates and growth projections.
Subbarao, who served as finance secretary before becoming RBI governor in 2008, highlights the lack of understanding within the government regarding the importance of central bank autonomy. He recounts instances where the ministry pressured the RBI to lower interest rates and present a rosier picture of economic growth, even when it contradicted the bank's objective assessments.
One such instance involved then-Finance Minister Pranab Mukherjee and his team, who challenged the RBI's growth and inflation estimates. Subbarao recalls their attempts to sway the bank towards projecting higher growth and lower inflation to "shore up sentiment." This approach, however, conflicted with the RBI's commitment to maintaining its policy stance and preserving its credibility.
Subbarao also faced pressure from both Mukherjee and Chidambaram, albeit in different styles, to adopt a softer monetary policy. While Mukherjee subtly conveyed his views through his officers, Chidambaram, a lawyer by profession, presented his arguments more forcefully. This led to an "uncomfortable relationship" between the RBI and the Finance Ministry.
In 2012, when Chidambaram returned as Finance Minister, he aimed to reverse the fiscal profligacy of the previous regime and sought lower interest rates from the RBI. Subbarao's refusal to comply with this request led to a public expression of disapproval from Chidambaram, who stated that the government would "walk alone" to address the challenge of growth.
Subbarao's memoir sheds light on the complex relationship between the RBI and the Finance Ministry, highlighting the importance of central bank autonomy in maintaining economic stability and credibility.