At the launch of the book by Dr Yaga Venugopal Reddy, only a few months after demitting office as Governor of the Reserve Bank of India in mid-2008, the then Deputy Governor, Dr Rakesh Mohan, in his own inimitable style, quipped in so many words that India already has its own Dr Reddys Labs, otherwise the RBI would have been rechristened Dr Reddy?s Lab. Dr Reddy?s tenure at the RBI, particularly that as Governor since 2003, has been marked by significant innovation, with efforts to develop segments of markets that form the main transmission channels for the conduct of monetary policy, which remains one of the three core operational areas for the RBI.
A comparison with the literary effort of another stalwart of global finance who had penned his memoirs in recent time is inevitable. At least Dr Reddy?s editors spare us the risible subtitle of Alan Greenspan?s book (Adventures in a New World), but the subtitle here is also quite pedestrian. ?Managing money and finance? has a flavour of a weekly financial magazine and the hokum of dubious financial advisors rather than the thoughts of one of the important figures of financial regulation.
The reason that the prose might seem a little dry to those uninitiated in the style of central bankers is book is actually a collection of speeches made by the Governor over the course of his tenure at the RBI. Two chapters ? an Introduction and Epilogue ? are added. Even here, Dr Reddy is far more constrained and ?central banker?-ish than the more readable prose of Professor Greenspan. The speeches have been broadly clustered into financial sector reforms in India (including the liberalisation of the capital account), the conduct of monetary policy and the global financial crisis.
But the content of the chapters, though informative in themselves, cede ground to the fascination of the context in which they are said, particularly the political subtext in which we, as informed bystanders, have observed the conduct of policy. Dr Reddy?s tenure as Governor of the RBI has also been noted for a divergence from the views of some committees constituted to advance financial sector reforms ? notably, the Percy Mistry Committee for making Mumbai an International Financial Sector and the Raghuram Rajan Committee. This has led to much media and editorial analysis of personality frictions, and thence to larger issues of regulatory independence, including the conduct of monetary policy.
The scope of these issues are actually quite significant and were, a trifle ironically, actually precursors of debates that now resonate across global regulatory landscapes, particularly at the Bank of England, and increasingly now at the Federal Reserve, of the degree of responsibility and independence of financial regulators. How fast should financial sector reforms be instituted? How intertwined are these reforms with the stability of the other major policy modules of the Government, namely, fiscal and industrial? Should the RBI function solely as the monetary policy maker? Should it divest itself of its additional roles of a banking sector regulator and as investment banker to the Government?s borrowings? Should the latter function be hived off to a separate Debt Management Office that independently manages the Debt programme? As a monetary policy maker, should it narrow its scope to inflation targeting, rather than using a multiple indicator approach to address other objectives like growth and financial stability? How important is the development of the so-called ?Bonds-Currency-Derivatives (BCD) nexus? for refining these transmission channels? These are issues of enormous import whose resolution will shape the Indian financial landscape.
Dr Reddy is now feted in the global financial and policy community for his sagacity and foresight in tempering various asset bubbles that had been rapidly building up in India, as they had globally. There are also many other areas where his natural caution has led to more perceived delays in integrating India?s financial sector with the global market. Was he right? Time will tell. Without doubt, Dr Reddy steered the functioning of an institution that in many ways has had a far more overweening responsibility than most other central banks: Banking supervision, monetary policy and investment banker for the Union Government. Even more than the Federal Reserve, the scope of the RBI extends to fostering growth, including inclusive growth.
In the eyes of the media, the tensions of monetary policy making has increasingly swamped the less-adrenalin inducing analytic aspects and grungy details. Dr Reddy?s book is an invaluable insight for the vast majority of interested readers, even economists whose professions (unlike mine) does not require a daily intensive tea-leaf style reading of various nuances of RBI communiques and data.
The reviewer is Senior Vice-President, Axis Bank. These are his personal views