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Book Review: Mapping The Mint Street

The book is quite topical given the acrimony between the government and the RBI. Bajoria’s narrative provides the consolation that we need not be too scandalized by the developments as this has been happening all the time.

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When nationalisation was announced in 1969 all politicians took it upon themselves to have more branches opened in their constituency. L.K. Jha, Governor of RBI wanted licensing to be RBI’s forte and the approach to be gradual. He was asked to leave in 1970.  Governor Jagannathan as head of RBI was not a willing partner to channel funds for Sanjay Gandhi’s Maruti project. He made an early exit from the central bank and moved to the IMF. Meanwhile R K Talwar of SBI was strict on loans to Sanjay Gandhi and Co, and as a punishment there was a CBI enquiry which however found nothing against him. Mr K.R. Puri as Governor of RBI was pliable and had a cosy relation with the Congress government. He was forced to leave by the Janata government in 1977. However, when heading a single person committee on demonetization undertaken by the Janata government in 1978, he responded with a scathing critique. Governor R.N. Malhotra was against giving the government a higher dividend in 1986-87  was not only snubbed but also got on the wrong side of the Finance Ministry during Chandrashekhar‘s brief regime and resigned in 1990. More recently Dr Urjit Patel resigned suddenly and the circumstances under which this took place left little room for speculation.

When you read about these incidents in the history of RBI and juxtapose with what is written about between the Government of India and the RBI in the current context, the idea which strikes us is that conflicts between the two has been historical with the government always having the last word.

It is the narration of these stories during different regimes of Governors of the RBI which make Rahul Bajoria’s, ‘Story of RBI’ very engaging. There are official volumes on the history of RBI which can be found on the web site of the central bank where one can get the historical narrative. But, Bajoria makes a difference by mixing history with several anecdotes that are relevant as they bring us closer to the RBI-government dynamics.

There are different aspects of the central bank that are captured here in these 280 odd pages. The evolution of the institution is vintage reading as one gets to know about how it was formed in 1935. The salient developments of a central bank are covered very eloquently right from the focus on agri finance to the present setting up of new payments banks. In between the genesis of institutions like NABARD, the story of nationalization, tackling forex crisis, introduction of LAF, sale of RBI stake in SBI, doing away with adhoc Tbills, FRBM, Narasimham Committee etc are covered in a rather crisp manner giving the essence without making the drink too voluminous. The creation of the MPC is probably one of the more significant developments in recent times as it is a distinct deviation from the way monetary policy is being decided. This is good for the student of central banking as it chronicles in a succinct way the major milestones.

The political context is mixed well with the functioning of the central bank and this is where one can relate to as the most controversial topic these days is the independence of the RBI. While political interference has been a part of the DNA, there appeared to be a period of mutual respect till about Dr Reddy’s tenure after which the level of acrimony appears to have increased with the governments tending to be more involved in the conduct of monetary policy. The personalities of various RBI Governors can be conjectured here where some like Dr Jalan and Dr Rangarajan come out as being professional and tending to steer clear from controversy. Others like Dr Reddy, Dr Subbarao and Dr Rajan came across as being progressively more assertive. The selection of RBI Governors also appears to be almost always political but the storyline has tended to change for the ruling power once the Governor becomes part of the RBI and turns professional. The Governor is no longer the government’s person on Mint Street.

With Dr Reddy the tone of conversation was more polite. When the Governor requested the then FM, Mr Chidambaram, to be circumspect in his media briefings to ensure that markets were not psyched, his reply was that in a democracy the FM could opine on monetary matters. Dr Subbarao came across as being vocal and had the same FM come up with classic quote of the ‘government walking alone’. There was also an allusion to bringing in fresh thinking in the RBI at this time which was a subtle reminder on who was more powerful. The tussle was always on lowering the interest rates by the RBI which carried on in Dr Rajan’s tenure. The politician Dr S Swamy had openly asked for his dismissal while Nirmala Sitharaman was critical of the choice of his words when he referred to the ‘one eyed king’. His other headlines made on the concept of ‘make in India’ or ‘tolerance’ also has been highlighted in the build-up of his differences with the government.

In more contemporary times the author revisits demonetization and the role of the RBI. In his opinion the RBI did not come out well in terms of its credibility in the short term. Here he quotes various other Governors for taking a different view on the scheme and what the RBI should have done. However, he commends the central bank for managing the entire process despite the hiccups and remonetisation effort.

The author has two interesting bits of advice for the central bank. The first is the need to get in getting lateral recruits as the central bank has its own recruitment process and what normally follows is group think which is one sided. The other refers to the need to strengthen the research capabilities.

The book is quite topical given the acrimony between the government and the RBI. Bajoria’s narrative provides the consolation that we need not be too scandalized by the developments as this has been happening all the time.  The book is very informative and makes good reading especially for one looking for a refresher where the micro details do not matter.

Disclaimer: The views expressed in the article above are those of the authors' and do not necessarily represent or reflect the views of this publishing house. Unless otherwise noted, the author is writing in his/her personal capacity. They are not intended and should not be thought to represent official ideas, attitudes, or policies of any agency or institution.

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Magazine 8 December 2018 book review books

Madan Sabnavis

Sabnavis is chief economist, CARE Ratinigs and author, more recently of Economics of India: How to Fool all People for all Times

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