'We decided to take...': Ex-RBI Governor on how 'the best financial team' came about in Manmohan-Rao regime

Former RBI Governor C Rangarajan, in an interview aired on Wednesday, shared details of what many call one of the best financial teams in the government in 1992. This was a time when India had just carried out a comprehensive economic reform to get out of the balance of payment crisis.

At that time, Rangarajan, an academician, and economists Montek Singh Ahluwalia and Manmohan Singh were part of the government headed by then Prime Minister Narasimha Rao. Manmohan Singh became the finance minister when Rao was the Prime Minister. Both are credited for the historic and much-needed economic reforms in 1991. 

Rangarajan, a macroeconomist by training, said it happened because somewhere around that time it was decided that the government would also take in competent people from outside. "Essentially the government was run by the bureaucrats, particularly the civil servants, the IAS officers. But from time to time, they decided that it is good to get people from outside and make them part of the system," he said in a podcast, The Neon Show.  

"So what you have at that particular time, a mix of people who have come from outside at some particular point in time. So I had spent, for example, in academia for almost 20 years before I came into the Reserve Bank and therefore part of the system. Similarly Montek Singh Ahluwalia, Shankar Acharya, and others. But there are also people from within the IAS, who were also efficient and competent and who could also do things like NK Singh."

Rangarajan served as the RBI Governor from December 1992 to November 1997. He also served as Chairman of the Twelfth Finance Commission for a year (2003-4), and then the Chairman of the Prime Minister's Economic Advisory Council from August 2009 to May 2014. 

Ahluwalia joined the government from the World Bank, where he was the chief of the Income Distribution Division. Similarly, Shankar Acharya, who joined the government in 1993, worked at the World Bank for over a decade from 1971 to 1982. Acharya served as the CEA (secretary rank) from April 1993 to March 2001. 

"Therefore, it so happened at that time, there was a mix of people who had domain knowledge acquired outside and coming into the system as well as people who were very competent in their civil service who could really contribute to it. It's also part of the management skills of the policymakers," Rangarajan said.

In 2017, the Niti Aayog advocated for lateral entry in bureaucracy and recommended for induction of personnel at the middle and senior management levels in the government. Based on this, the Centre in July 2019 decided, in principle, to appoint outside experts to 10 positions of Joint Secretary in some ministries and departments and 40 positions at the Deputy Secretary/Director level.

Earlier this month, former Niti Aayog VC Arvind Panagariya said that changing the entire bureaucracy system is so difficult that he has always felt that lateral entry is one way to proceed. "But even that has been extremely hard," the economist said while speaking to Aroon Purie, Chairman and Editor-in-Chief of the India Today Group.