The RBI lowers its volume

The acceleration in the pace of publishing the history of the central bank is something worth wondering about. It would be better to let some time elapse before embarking on the exercise

The Reserve Bank of India (RBI) has now published five volumes of its history. It was kind enough to send me the latest volume. But this article is not a review of the book. It’s about how the RBI, truly a national treasure, goes about writing its history.

The first two took 28 years from 1970 to 1998. The next three have been published in quick time, in just 17 years.

This acceleration is something worth wondering about. Would it not be better to let some time elapse before embarking on the history of a period?

The latest volume, No 5, covers just 10 years, unlike the previous ones, which covered 14-17. Volume 1 covered 1935-51; Volume 2 1951-67; and Volume 3, with which I was associated, 1967-81. Then came 1981-98 in Volume 4, and now Volume 5 for 1998-2008.

Volume 1 was prepared by the venerable S L N Simha, and Volume 2 by a team of writers but authorship was given to G Balachandran of the Delhi School of Economics. He had helped write it.

For Volumes 3 and 4, the RBI decided not to have any author credits. Volume 5 has been written by one of India’s foremost economic historians — Tirthankar Roy, a professor at the London School of Economics — but he is mentioned as the author on the title page but not the cover.

There’s another thing: Because of an inexplicable rule laid down by the past chairman of a committee that oversees the histories, it has been decided no, or very few, names will be mentioned. Only designations will be placed on record. And no process either, only outcomes. So we never get to know how and why something happened.

But this was not the style that was followed in Volumes 1-3. The result is that Volumes 4 and 5 read like annual reports of the RBI. That’s very unfortunate because the RBI is what they call a real “happening” place.

I have two suggestions in respect of future histories. One, the RBI should revert to the style of Volumes 1-3. And it should wait at least till 2027 before it starts work on the period 2008-23, which should be the subject matter of Volume 6.

The period 1998-2008 was one of major changes in Indian and global monetary policy. If the RBI during the previous 15 years gradually freed up the financial sector, these 10 years brought home to it the risks and rewards of that freedom.

The rewards were many: Low interest rates, higher competition, accelerated growth. It was what you would today call the “amrit kaal” of Indian banking between 2002 and 2013. They were mending a lot and they were fully capitalised.

But the risks were many, too, like non-stop interference by the finance ministry, which posed severe challenges. Volume 5 pretends there was no finance ministry at all and that the RBI wasn’t fighting its partner.

During 1998-2008, two very politically and administratively skilful governors, Bimal Jalan and Y V Reddy, had set the template: Low interest rates and healthy banks, respectively. Both had worked in the finance ministry and knew how the system worked. But we don’t get a flavour of that at all because all controversies have been omitted.

This was also when central bank independence was a hot topic. Volume 5 has devoted 10 lines to the topic in a four-inch box on page 3 in the form of two quotes from two governors!

The irony is that the RBI’s files are full of information that throws light on the RBI-government relationship but this information is now being withheld. But see how Volume 3 (1967-81) handled it:

“... Manmohan Singh arrived in Bombay and bluntly informed the Bank’s top executives that the government felt that there could have been ‘prior consultation’ with them before announcing the credit policy on May 8.”

“... Krishnaswamy apprised Manmohan Singh over the phone of the measures proposed to be announced at the Governor’s meeting with bankers on May 7. The latter shot back that the ‘Secretary desired that such matters from the Reserve Bank should be in writing’ ... This episode was a rude reminder that the Bank’s policies could be formulated only with government’s concurrence.”

“... Manmohan Singh pointedly told the Bank ‘government would like the Reserve Bank to examine the matter on a most urgent basis for such action as it is considered appropriate in the direction of tightening credit against cotton’... The Bank issued a directive to the banks on July 08, 1976, raising the margins on raw cotton.”

“... Manmohan Singh had written to Krishnaswamy that as the FCI could not repay about Rs 250 crore to the government, and as the Budget for 1976-77 took credit for this amount, the Bank could arrange to provide FCI additional credit of Rs 250 crores ... The needful was done.”