RBI: An economist looks back

C Rangarajan’s memoir is a book for serious readers of history of economic policy making in India

An economist looks back
Over the next few decades, Rangarajan would go on to become a member of the Planning Commission, lead the RBI, head the 12th Finance Commission, chair the Prime Minister’s Economic Advisory Council and spearheaded several critical panels.

One day in 1981, then Reserve Bank of India (RBI) governor IG Patel called up a middle-aged economist teaching at IIM-Ahmedabad to ask if he would like to be considered for the post of deputy governor. The unexpected offer was quite attractive, and he said yes. He didn’t hear from Patel for months thereafter. In one of his visits to Bombay, he met Patel, who remained non-committal. He assumed that the chapter was closed and started correspondence with some foreign universities for a visiting position. One fine morning in January 1982, he read in a newspaper that he had been appointed the deputy governor. Then came a call from Patel, saying, “Welcome aboard”. Thus began the illustrious journey of veteran economist C Rangarajan in the economic policy-making landscape. By his own admission in his memoir, Forks in the Road: My Days at RBI and Beyond, it was an unplanned entry.

Over the next few decades, Rangarajan would go on to become a member of the Planning Commission, lead the RBI, head the 12th Finance Commission, chair the Prime Minister’s Economic Advisory Council and spearheaded several critical panels. Not to forget his stint as the governor of Andhra Pradesh and a brief sojourn in the Rajya Sabha. Between 1982 and 2014 that the memoir covers, India faced two balance of payment crises, adopted liberalisation and undertook some difficult reforms. Thus, his memoir presents a ring-side view of India’s economic policy making during some of its very critical junctures.

The book comprises three parts. The first part deals with Rangarajan’s tenure as the deputy governor at RBI from 1982 to 1991, and a brief stint as a member of the Planning Commission. It dwells on the origin and the initial handling of the balance of payment crisis of the early 1990s. The second part covers his ascension as the RBI governor between 1992 and 1997. It essentially sheds light on the altered roles and functions of both the monetary and fiscal authorities in the wake of liberalisation. It’s during this period that he was instrumental in ushering a set of critical reforms—including the deregulation of interest rates, bolstering the banking system by a gradual tightening of prudential norms, creation and nurturing of financial markets, giving them depth and vibrancy, shifting to market-determined exchange rates, making the rupee convertible on the current account and the cessation of automatic monetisation of Budget deficit. The third part covers the developments between 1997 and 2014 when he served as the governor of Andhra Pradesh, the head of the 12th Finance Commission and the chairman of the PMEAC.

In a way, the journey of Rangarajan, the technocrat, is closely interlinked with the rise and rise of Manmohan Singh in the country’s economic and political firmament. No wonder, he dedicates this important book to Singh “whose vision and courage”, he asserts, “opened up new vistas and opportunities in India”. In fact, Rangarajan, who had trained as a monetary economist, mulled over quitting as deputy governor of the RBI under Patel, as he thought his portfolio (two research departments of economic analysis and statistics, besides training institutions) didn’t do justice to his training. It was during Singh’s two-and-a-half-year tenure as governor that he got the charge of monetary policy and exchange rate management. He became the RBI governor when Singh was the finance minister, and the chairman of the PMEAC when Singh was the prime minister. Thus, the duo, in various roles, were part of several crucial policy changes aimed at transforming the Indian economy.

It’s also natural, therefore, to expect the memoir to shed light on both the reforms initiated and the controversies, or even differences of opinions, during the course of policy making. It’s here that Rangarajan the professor takes the charge of narration. The book shies away from elaborating much on controversies, and Rangarajan, a great economist as he is, approaches the events through the prism of a scholar. So, even when he dwells upon a controversy, he describes it in a matter-of-fact manner, without lowering the academic rigour. And this turns out to be a deliberate decision, as he concedes in the introduction of the memoir: “It’s more a chronicle of events, explaining not only what happened but also the motivations and processes behind such events or policies.” He also admits: “Publishers have one angle. They want the personal elements and anecdotes to be highlighted. In their opinion, that’s what makes the narrative appealing. I have tried to underplay that angle.” This is the biggest strength as well as weakness of the narration. It helps the readers remain invested in the subject with all the seriousness, without diverting their attention to the differences of opinions that were ultimately set aside to pave the way for the reforms. At the same time, it somewhat deprives them of their chance to know who said what and on what ground and how the policy-makers finally managed to drum up consensus. Perhaps the author is conscious that differences of opinions among key players, if elaborated in detail, would ultimately grab eyeballs and the significance of the reforms undertaken would be lost in the resultant cacophony.

This tendency, however, hasn’t stopped Rangarajan from airing critical views on controversial subjects, thus retaining intellectual honesty throughout. For instance, he makes it clear that the government acted late on the RBI’s advice to seek the help of the International Monetary Fund (IMF) in the aftermath of the balance of payment crisis in 1990. Had it heeded the warning on time, it could have handled the situation better and perhaps extracted a better deal out of the IMF. In fact, India prevented another balance of payment crisis in early 1980s from turning into a major crisis by acting on time in close collaboration with the central bank, he has highlighted.

He has batted for the autonomy of the central bank and healthy working relationship between the RBI and the finance ministry despite differences. The crisis of the 1990s was handled well, as both the finance ministry and the central bank worked in consonance with only national interest in mind, without resorting to territorial dispute, the book suggests.

In a chapter titled Some Ruminations that includes Rangarajan’s views on the state of the economy after 2014, he writes: “The shocking management failure with respect to demonetisation announced in 2016 and the continuing teething problems of GST had their adverse impact on the economy. Certainly, it appears from the data that the investment climate deteriorated.”

In an apparent suggestion for the government, which is drawing up the Budget for FY24, he says: “While public-sector investment, particularly in infrastructure, may ‘crowd-in’ rather than ‘crowd-out’ private sector investment in crisis years, this can’t be the permanent solution. Private investment— corporate as well as non-corporate— must pick up.” The government has substantially raised its budgetary capex in the wake of the pandemic. However, to be sure, finance minister Nirmala Sitharaman and senior government functionaries have called on the private sector to awaken its animal spirit, stating that the current high pace of rise in public capex can’t be sustained forever.  

Thus, the memoir is not for headline hunters; but it will serve as a go-to book for serious readers of the history of economic policy making in India.

Forks in the Road: My Days at RBI and Beyond
C Rangarajan
Penguin Random House
Pp 304, Rs 699

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First published on: 29-01-2023 at 00:05 IST