'My refusal to fall in line upset Chidambaram...': Ex-RBI guv Subbarao claims former FM overstepped into RBI turf

While government–central bank differences were nothing new, former RBI Governor Duvvuri Subbarao, in his recent book, has said that he was “invariably discomfited and annoyed by the demand that the RBI should be a cheerleader for the government”.

In the book 'Just A Mercenary?: Notes from My Life and Career', Subbarao wrote that there was 'little understanding and sensitivity' in the government on the importance of the central bank's autonomy. In October 2012, shortly after P Chidambaram returned as Finance Minister from the Home Ministry, he pushed for a softer monetary regime to offset fiscal profligacy of the Pranab Mukherjee regime. 

Chidambaram, Subbarao wrote, put pressure on the RBI to lower the interest rate. "On objective considerations, I could not oblige him though, my refusal to fall in line evidently upset Chidambaram enough to do something very unusual and uncharacteristic— to go public with his strong disapproval of the Reserve Bank’s stance,” he said.

In his ‘doorstop’ media interaction outside the North Block about an hour after the Reserve Bank put out its hawkish policy statement expressing concern on inflation, Chidambaram said, “Growth is as much a concern as inflation. If the government has to walk alone to face the challenge of growth, we will walk alone.”

“There was a lot of suspicion in those early weeks of my tenure that I was a government lackey sent to the Reserve Bank to act at the government’s bidding,” Subbarao wrote in his book.
Amid the global financial crisis in 2008, even as the Reserve Bank was firefighting liquidity, Chidambaram constituted a committee on liquidity management without consulting the RBI. 

“I was annoyed and upset by this decision. Liquidity management is a quintessential central bank function, and Chidambaram had clearly overstepped into RBI turf,” he wrote. Not only did he not consult the RBI on the committee, but he had not even informed him of this before the notification was issued. 

“I called up Chidambaram and let him know in unequivocal terms that his action was totally inappropriate and requested firmly that he dissolve the committee. The call ended with my telling him that the Reserve Bank would not participate in the committee,” he wrote.

Through his memoir, the 74-year-old also recounted his journey - his hopes and despair, his successes and setbacks, his mistakes and misdeeds, and the lessons he learnt along the way - with rare candour and honesty. At the start of his career as sub-collector of Parvathipuram sub-division in north-coastal Andhra Pradesh way back in 1974, Subbarao learnt that tribal development requires more than enthusiasm; it requires most of all an understanding of poverty. Nearly 40 years later, in 2013, as the governor of the Reserve Bank of India in the midst of a fierce exchange rate crisis, Subbarao learnt the harsh challenges of emerging economies in an unequal world. 
Subbarao is currently a senior fellow at the Yale Jackson School in the US.