 "Has Subbarao been pushed out of the next RBI Governor race?")
So it was quite surprising to find an otherwise disciplined P Chidambaram virtually ruling out any extension to the present RBI Governor D Subbarao in an interview to Economic Times. Chidambaram argued that Subbarao met him a few weeks ago and said that he would like to move on and not be considered for an extension. This has put a lid on any further speculation of Subbarao being in the race to continue at Mint Road.
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Under normal circumstances, no motives would be attached to what the finance minister has said. After all, the decision to continue as the governor or not is an individual's decision and that has to be respected. But the fact that Chidambaram chose to make this statement when the relationship between the finance ministry and the RBI is rumoured to hit a new low shows that there is more than what meets the eye.
In fact, the same question was put to the RBI Governor himself in Moscow at the sidelines of a meeting of the world's financial leaders on July 20. Subbarao responded to Reuters by saying that the question is hypothetical and since no offer has been made so far, there is no question of accepting it. While he did say that it was time to move on, it was clear that the statement meant that since no offer has been made, he would rather move on.That’s precisely why Chidambaram's statement making the announcement on behalf of Subbarao is being taken with a pinch of salt.
The timing of Chidambaram's statement is also in question as just a few hours before the RBI Governor delivered what could now be termed as his last monetary policy in Mumbai. While the RBI maintained its status quo on interest rates, Subbarao did not mince words when he made it clear that only government led reforms could push growth, gave no timeline for rollback of the liquidity tightening measures and dismissed the government's pet scheme of issuing sovereign bonds to bring in dollars as an exercise in futility.
The finance ministry and the RBI have repeatedly been at loggerheads on monetary policy and on the interest rate regime. While the finance ministry wanted a more favourable interest rate regime to force banks to lend aggressively and improve the investment climate, Subbarao has maintained a hawkish stand, preferring to keep his gaze on controlling inflation and keeping money supply tight.
While technically, the central bank is autonomous and cannot be forced to toe the government's line, on more than one occasion the finance minister has made public statements coaxing the RBI to make growth its priority. The fact that the Governor has not budged except for three successive policies where he brought down key rates by 75 basis points was enough to signal that the time is up and an extension will not be granted.
The race has now narrowed down between the three other contenders. Planning Commission Member Saumitra Chaudhuri, Economic Affairs Secretary Arvind Mayaram and Chief Economic Advisor Raghuram Rajan. While Saumitra Chaudhuri is seen as the PM's candidate and Mayaram as the finance minister's candidate, Raghuram Rajan could just emerge as the consensus candidate given his credentials globally.
But the government can never rest easy on whoever emerges as the final choice. It’s no secret, that no matter what your origins are, the RBI Governor develops a mind of his own which may often never be in line with the populist demands of a government, especially in an election year. For that, you do not need to go too far in the past, but look at Subbarao, who having served as the finance secretary was seen to be the ideal government choice to implement its measures.
The rest as they say is history.