During Yaga Venugopal Reddy’s term at the Reserve Bank of India (RBI), the central bank and the government had differences on a host of issues ranging from interest rates to entry of foreign banks into India.
An audience of around 500, comprising present and former brass of RBI, academicians and mediamen, which had gathered at a function to mark the release of Reddy’s first post-retirement book, had hoped that he would talk at length not just about his stint on Mint Road but also his assessment of the global economic situation.
But Reddy ended up disappointing the audience by keeping his speech brief. At the release of ‘India and the Global Financial Crisis’, Reddy simply said that timely measures from policymakers resulted in India being protected from the extreme effects of the ongoing global financial crisis.
Then he went on to ask his successor D Subbarao to release the book. But before that, he had a small incident to narrate. Reddy revealed that when RBI Deputy Governor Rakesh Mohan, a notable absentee at the function, moved to Delhi as secretary in the Department of Economic Affairs, he had sounded out Subbarao for joining as a deputy governor. But Subbarao preferred to stay in the civil service. “Now, he (Subbarao) seems to have realised that life is better in RBI,” said Reddy.
If Reddy’s short speech was a surprise, Subbarao spoke for over 20 minutes.
The governor said that there were no differences between the government and the RBI on big issues such as the opening up of the banking sector and fuller capital account convertibility. At the same time, he said the differences were on how to navigate the road.
Subbarao was, however, in complete agreement with Reddy’s policies and said that the country had managed to escape the worst aspects of the financial crisis due to the policies framed by his predecessor.
Unlike heads of some central banks in developed markets, Reddy, who was the RBI governor till September 5, did not plead helplessness in tackling risks to the financial system, Subbarao said. Instead, he focussed on counter-cyclical policies to rein in “bankers who turned from being lazy to indulge in crazy banking”, the governor added.
Referring to challenges that present crisis posed, Subbarao said now the central banks would have to think about dealing with the post-crisis scenario.
“Even as we battle crisis, we are only addressing symptoms and not the causes,” he said, advising Reddy that his next book should deal with winding down the crisis.
