Former Finance Ministers Chidambaram, Pranab tried to put pressure, reveals RBI ex-Guv D Subbarao

NEW DELHI: The finance ministry under Pranab Mukherjee and P Chidambaram used to pressurise the RBI to soften interest rates and present a rosier picture of growth to shore up sentiments, recalled former RBI Governor Duvvuri Subbarao in his memoir.

In his recent book ‘Just A Mercenary?: Notes from My Life and Career’, Subbarao also wrote that there is ‘little understanding and sensitivity’ in the government on the importance of the central bank’s autonomy.

In a chapter titled ‘Reserve Bank as the Government’s Cheerleader?’, Subbarao recalled that pressure was not limited to the interest rate stance. On occasion, it extended to pressuring the RBI to present rosier estimates of growth and inflation at variance with our objective assessment.

“I remember one such occasion when Pranab Mukherjee was the finance minister. Arvind Mayaram, the finance secretary, and Kaushik Basu, the chief economic adviser, contested our estimates with their assumptions and estimates, which I thought was par for the course,” he wrote.

What upset him, Subbarao said, was suggestions that RBI must project a higher growth rate and a lower inflation rate in order to share responsibility with the government for ‘shoring up sentiment’. Subbarao said he was invariably discomfited and annoyed by this demand that the RBI should be a cheerleader for the government.

He said he used to take a firm position that the Reserve Bank cannot deviate from its best professional judgement just to doctor public sentiment.

He also recalled that he had run-ins with Chidambaram, too. “Chidambaram typically argued his case like the lawyer that he so eminently is, while Mukherjee was the quintessential politician”, letting his view be known and then leaving it to his officers to argue his case, he said.