RBI Governor Mr Subbarao may not have earned the popularity that other Governors have earned but that maybe more because of the misgovernance of the UPA Government. Subbarrao's biggest follly is that he tried to fight the wrong dragon (inflation) while killing growth. But the dilemmas of Modern Central Banking in Emerging markets is getting tougher by the day. I have interacted with atleast two deputy governors (S.Venkitaraman, S.S.Tarapore) and one RBI Governor Dr.YV Reddy (I was travelling first-class next to him in a flight from Mumbai to Hyderabad). The minds of these people are quite different from the minds of businessmen and professionals and housewives and students in our midst. They have to track so many variables and have to take decisions that may not be pleasant to most people and yet be guided by impact on the society as well. While I will share my experiences of my interviews with such top-brains later, this one is to put in right perspective the achievements of Subbarao after his farewell speech recently.
1. He has extended the streak of fearlessness and autonomy set forth by the preceding Governor Dr.YV Reddy. He was always clear that for every step the RBI takes, the Government has also to match it with fiscal initiatives. Too bad, the UPA Government slipped on many counts in this ground and wants to blame everything on RBI for the follies of the slippages on GDP growth, the exchange rate, etc.
2. Mr Rao, I believe, carried a resignation letter in his pocket everyday. So, nobody could have arm-twisted him to do anything that was not in principle appealing to his perception of Central Bank sensibilities. Neither the nincompoop Shankar Sharma with his unethical market behaviour or his un"bear"able fixations, nor opposition leaders like Yashwant Sinha and Arun Jaitley nor businessmen like Ambanis and Kris Gopalakrishnan nor PM or his FM could influence Mr Rao to curry favors on easing of monetary policy.
3. The incoming governor, Raghuram Rajan, will have a lower base of expectations and a weakened currency regime and an economy that will eventually climb the wall of worries. But the times that Subbarao managed are the most difficult and will help him earn more than a footnote in history even if he is thanked less now.
4. Inflation, is clearly, under control but beyond a point, if it refuses to die down, there are many factors at play - supply-side bottlenecks, reckless fiscal policy, exogenous forces at play, Fed's exorbitant privileges, etc.
5. Mr Rao is the first governor to open the doors of transparency and increase the frequency of interactions with public. He started the practice of monetary policy review eight times a year instead of four-six reviews a year in the previous stints.
6. Subbarao also participated in the most enlightened debates on central bank policies and its transmissions on the broad economy besides opening the Pandora's box on corporates getting new bank licenses, role of CRR etc. Of course, the debates that RBI had with the top guns at SBI are stuff of legend now - but that is only to be expected because SBI always felt it is more senior (and hence more ancient) than RBI in age.
7. Subbarao, like Dr.YV Reddy, opened the culture of TV debates and informal talks and continued the respect of peers across G-20 countries. He has also acknowledged the complexity of having multiple regulators and created the framework for right debates between the relevant regulators. If the US has today got six regulators, RBI also has created room for co-ordinated maneuvres.
8. Willingness to act tough and learn from the history of banking crises has helped Subbarao to earn credibility. You should read his prescient essay on Basel-III norms to understand the mind of the man. Ministers like Chidamabaram who sit on intellectual tags and cannot steer clear of personal and career conflicts will never be able to hold a candle to men in public institutions like Subbarao who have nothing but unquestioned integrity, broad experience, nonconflicted judgment devoid of pollitical partisanship and the will to act.
9. One fatal flaw that undermined Subbarao's endearing appeal is the rapidity with which he raised interest rates while cutting the interest rates in a lazy manner. He has realised the mistake but with grave consequences for the economy. He would have loved the unleashing of animal spirits had he taken more than baby steps in cutting interest rates for the little leg room that showed up somewhere in the period from September 2012-June 2013 but that proved to be a remiss too costly to miss.
10. Subbarao, despite that one fatal flaw, has kept the flag of autonomy in a developing country Central Bank unusually high. Let there be no doubt about his competence, his sense of humor, his resolve to tame inflation which was touching double-digits, his integrity and his independence. If RBI has earned its spurs today as one of the most respected central banks on the planet - whose working papers, whose policies and methods have become beacon lights of textbook economic responses, then let's credit Subbarao for joining the ranks of the great institution-builders.
Subbarao is one of the commonest names in Telugu, it means the lucky one in Telugu. Even though Subbarao's stint in RBI has proved unlucky for India, it is not uneventful. In another country, another time, there would be a testimony of sorts. But this is India, we are like this only. Goodbye, Mr Subbarao. I will end with the words of Paul Volcker that clarify on how to size up crntral bankers: "The Federal Reserve, after all, has only one basic instrument so far as economic management is concerned—managing the supply of money and liquidity. Asked to do too much—for example, to accommodate misguided fiscal policies, to deal with structural imbalances, or to square continuously the hypothetical circles of stability, growth, and full employment—it will inevitably fall short. If in the process of trying it loses sight of its basic responsibility for price stability, a matter that is within its range of influence, then those other goals will be beyond reach."
