Outgoing Reserve Bank Governor Raghuram Rajan today disclosed that idea of raising diaspora deposits, which changed the downward course of the rupee when he took over in September 2013, had come from bankers and he was very sceptical about it given the cost to the exchequer.
“I thought this is bankers coming in again to get one of the sweet deals which will help them. They will go out and raise the money. They will get fantastic bonuses and we will end up paying for it,” Rajan said, after launching his predecessor D Subbarao’s memoir at RBI headquarters here.
Rajan conceded that he thought the idea to be “completely idiotic” as it was akin to giving 3.5 per cent subsidy to bankers and it was “the worst of the ideas on the table” which made him request Subbarao to announce it while departing.
Rajan announced the scheme on the evening of September 4, 2013, the day he took over. The scheme attracted inflow of USD 30 billion in FCNR-B deposits and changed the course of the rupee which was bleeding following the ‘taper tantrums’. It was considered to be a masterstroke by Rajan.
“Now I get credit for the idea which actually I neither invented nor actually believed in,” he said, adding the dire situation required us to do something, which got done.
Incidentally, in the memoir tiled ‘Who Moved My Interest Rates?’, Subbarao credits Rajan for the idea.
The Governor said on the cost-benefit analysis front, it has worked out very well and the country had made money.
Against the cost of up to Rs 20,000 crore to get the deposits, the country benefited through stabilisation of rupee, which helped reduce imports by up to Rs 1.6 trillion per year through the around-Rs 4 reduction in the value of the rupee.
“It was an important idea, we had to try because we were in a situation when we had to try something to change the narrative,” said Rajan, whose term ends on September 4.