Memoirs of an economic savant

C Rangarajan's book is a superb record of the economic history of the initial years of reform

Back in 2006, the good Drs Y V Reddy, who was the Reserve Bank of India governor then and Rakesh Mohan who was deputy governor, asked me to record some oral histories for the history cell of the RBI. It was headed by T K Chakraborty, an excellent economist and an ebullient man. Over three months, he and I recorded over 40 former RBI people, in audio and video.

One of them was C Rangarajan, who had served as a deputy governor in the 1980s and as governor in the 1990s. He recorded nearly 10 hours with us in his office in Vigyan Bhavan, where the Prime Minister’s Economic Advisory Council was located. He was its chairman.

As an aside, let me say that he has probably forgotten it but I had first met him in 1976 when he was teaching at IIM Ahmedabad. I was trying to persuade him to write a textbook for Macmillan, where I was working as the commissioning editor for economics. He had already published one with Macmillan as a co-author with Samuel Paul.

When the oral history project was over, the tapes were placed in the RBI archives. Unfortunately, they have not been released to the public.

Fortunately, Dr Rangarajan, an intellectual amongst intellectuals, has now written his memoirs, published by Penguin. It is a superb record of the economic history of the initial years

of reform. The book is called Forks in the Road.

It has virtually no intrusion from his personal life. Or gossip. His first sentence is, “Should one write about one’s own story?” And the second is, “Who benefits from this?” There, in those 11 words you discover the man. He is, in any case, an intensely personal person not given to loquaciousness.

The book tells us how monetary policy was made those days. The experience was new to India, which was lucky to have such a clear-headed governor at the helm of the RBI from December 1992 to December 1997. Very quietly, he transformed India’s financial sector because he knew exactly what was needed. After all, he had been the main brains behind the Chakravarty Committee report of 1985. That report had strongly advocated a move to the market.

His most testing moment as governor was perhaps in 1997 when there was great political uncertainty. He introduced what has come to be known as the “Big Bang Monetary Policy”. And he did this without approval from the government because he wasn’t sure if, given the political uncertainty of those weeks, there would be a finance minister at all.

A very interesting nugget must be mentioned here. He says, almost as an afterthought, at the end of a chapter: “Finally, to end on a half serious note, I must refer to a ‘rumour’…that I was being considered for the position of finance minister. This is not without foundation.” Meaning it was true.

But instead of him, the United Progressive Alliance chose Pranab Mukherjee. We can only speculate on what the economy’s trajectory would have been if Dr Rangarajan, whom the prime minister had apparently wanted, had become finance minister. One thing is certain: He would not have let inflation go out of control as it did; or allowed the fiscal deficit to widen to the crisis levels of 2013 and 2014.

In fact, appalled by the way the government had been borrowing in the 1980s, it was he who had insisted that the system of ad hoc treasury bills, a euphemism for printing notes to finance the budget deficits, be capped. This practice had been followed since 1955 and capping it was one of the most fundamental reforms of the period. This gave the RBI much greater flexibility in monetary management.

The book covers such vast ground that it’s impossible to do justice to it in 750 words. The best one can do is to

tell the reader that for serious students of economic history, this is a must-read book.

Dr Rangarajan is a true savant, a man of deep learning and quiet discretion. Both qualities are ever present in the book. Its measured tone and its adherence to the essential elements make it dry but essential reading.

There are 17 chapters in all, spread over nearly 350 pages. Dr Rangarajan could have written twice that amount without, as we discovered while recording him, repeating himself. After all, he has done it all: RBI governor, finance commission chairman, governor of Andhra Pradesh, chairman of the PMEAC and last but not least, chairman of that troubled and troublesome institution, the Indian Statistical Institute.

So what’s the main lesson from this book? It’s best to quote just one sentence from his last chapter: “Without efforts to curtail liquidity, inflation cannot come down.”