Deja vu, RBI

The book disappoints to the extent that it does not bring any new insights to anybody familiar with the literature pertaining to the RBI

The Story of the Reserve Bank of India 

Rahul Bajoria

Rupa

308 pages; Rs 695 

How far can the government of the day put pressure on the governor of the Reserve Bank of India? What is this Section 7 of the RBI Act that was never used, and when was it introduced? How many times has the governor resigned? What was the opinion of the RBI when high-value currency notes were demonetised in the past? If we were to ask the questions that are cropping up today, we have answers for all those questions in the past. Rahul Bajoria’s book, The Story of the Reserve Bank of India puts the past in perspective and we can see history repeating itself again and again. Not that we have not learnt lessons from the past. We have learnt some, and are continuing to learn more.

The debates about setting up the RBI were preceded by the recommendations of a commission that argued for and tabled an RBI Bill for setting up “a central bank with issuing powers and provisions for private capital, and included restrictions on political appointees in order to preserve the institution’s independence”. It was only in 1949 that the RBI was nationalised. The RBI was also the central banker to Pakistan during the transitionary period of partition. 

It is interesting to note how Section 7 of the RBI Act was introduced. “In order to ensure that the credibility of the institution remained intact despite the change in ownership (from private to state-owned) [C D] Deshmukh [the first Indian governor of RBI] was keen that the results of any actions taken by the RBI based on the directives of the government were to be incumbent on the government itself.” Basically, this section that is now being interpreted as impinging on the autonomy of the RBI was introduced precisely to protect the central bank’s intellectual autonomy!

There were two episodes of demonetisation before 2016. The first was in 1946 when the objective of the government was to “fight against black money and tax evasions, which have now assumed enormous proportions”. Governor Deshmukh’s opinion was that “even its purpose as a minatory and punitive gesture towards black marketing was not effectively served”. The next was in 1978 when the objective of the government was to “reduce illicit transfer of money for financing transactions which are harmful to the national economy”. Governor I G Patel’s opinion was that “such exercises seldom produced striking results… the idea that black money is held in the form of notes tucked away in suitcases or pillowcases is naïve.” 

When we read the debates on the 2016 demonetisation, one gets a sense of déjà vu — we have committed these blunders and one wonders whether invoking George Santayana, who said, “Those who do not learn from history are doomed to repeat it”, or Karl Marx, who said, “History repeats itself, first as tragedy and then as farce” is more appropriate.

Mr Bajoria’s book is a recount of the story of the RBI that is already available, not only from the RBI in two versions but also the four-volume history and another concise history edited by Meena Hemachandra, who was the principal of RBI’s College of Agricultural Banking. Much of the government-RBI relations has also been captured in two of T CA Srinivasa Raghavan’s books — Dialogue of the Deaf and Crown of Thorns.   

Therefore, Mr Bajoria does not add much to the existing facts and stories about RBI that are already in the public domain. What he does competently is to get the chronology in place and narrate the events as they unfolded from RBI’s the perspective. It is interesting to note that a book, which recounts the history of an institution and has 693 footnotes (placed as endnotes), has hardly any original references to sources prior to 1998. Of course, it may be unfair to seek academic rigour in a book that is intended to be a repackaged offering of known and recorded events. It disappoints to the extent that it does not bring any new insights to anybody familiar with the literature pertaining to the RBI. In the current context, it is a useful book because it makes us take a re-look at what we have known all these days, but from a better, contemporary context.

Mr Bajoria has also been a bit careless. He calls the 1997-98 budget of P Chidambaram as “miracle budget”; sorry, the term for that particular budget was a “dream budget”. Similarly, the book has cover page quote, “We are neither hawks, nor doves, we are owls,” attributed to Raghuram Rajan. This quote belongs to the Urjit Patel who just resigned. Raghuram Rajan when asked the hawk/dove question had said that Patel has a better answer and that is how the quote came to be. 

Greater rigour and some more original work could have added to the understanding of the RBI. This book helps us only to hit the refresh button.

The reviewer is a faculty member with Centre for Public Policy, Indian Institute of Management, Bangalore

mssriram@pm.me