Two days before he turns 62, Duvvuri Subbarao got a birthday gift in advance from the Prime Minister, who extended his term as the Reserve Bank of India (RBI) Governor by two years—till September 2013.
Tuesdy’s announcement by the Prime Minister’s Office came as a surprise, since Subbarao’s current three-year term was to expire next month. However, observers said, faced with global economic instability, the government did not want to wait, and chose continuity over change at the central bank.
Finance Minister Pranab Mukherjee was effusive in his praise of Subbarao who, he said, was doing “a particularly good job.” “Though there was time to decide on an extension till September, we decided we should do it quickly, to ensure that there is no uncertainty,” Mukherjee told reporters after the announcement.
Subbarao’s immediate challenge is to prevent the crisis sparked by Standard & Poor's downgrade of US credit ranking from spreading to India. With global commodity and crude prices falling, he has to decide whether to stick to the anti-inflationary stance or pause the rate increases to revive economic growth.(Click here for TEN HEADS’ FIVE YEARS IN OFFICE)
| HITS |
| * Focusing on making RBI a knowledge-driven institution |
| * Aim to bring openness, demystify the governor’s office |
| * Taking RBI to the masses by outreach programmes |
| * Driving financial inclusion, aiming for banking presence in all unbanked areas |
| MISSES |
| * Unable to bring down inflation, which stayed stubbornly high for more than a year now |
| * Not much progress on new bank licences |
| * The second phase of the road map for foreign banks still awaited |
On his reappointment, the governor said he was happy that the government had reposed its confidence in him at this difficult juncture in world economy. "I look forward to working with a great team in the Reserve Bank to meet the many challenges ahead," he said.
Subbarao was appointed the governor of the central bank in 2008, when his immediate task was to tide over the aftershocks of the global financial meltdown. He was also the first governor in recent times to join RBI directly from the government, where he was the finance secretary. He is also credited with tiding over the 2008 crisis in a rather smooth manner.
Rakesh Mohan, former RBI deputy governor and a former colleague of Subbarao, said he wished the extension was for three years. "He has been the governor during very difficult years, from September 2008 until now. He is very competent," Mohan said.
Subbarao's predecessor, Y V Reddy, said, "I always knew it would come, because it is appropriate. Continuity is logical and definitely is on the basis of performance. It is particularly valuable at this time of crisis." Bankers were also happy with the development, as they expect a continuation of policy. HDFC Chairman Deepak Parekh said he was expecting the extension to be given to Subbarao. "He has protected the Indian financial sector extremely well, even when the world was falling apart. This extension means there would be continuity, which would ensure consistency. In banking, it is always better to err on the conservative side," Parekh added.
Subbarao, who was initially criticised for falling behind the curve for his ‘baby steps’ on inflation, became one of the most aggressive central banks in the world, raising key policy rates 11 times since March 2010 in an effort to cool inflation, which is now hovering around double-digit levels.
Under his watch, the central bank raised inflation estimates four times, as supply side bottlenecks, rising wages and a consumption shift towards protein-rich diets continued to fuel inflationary expectations.
In the last three years, a key emphasis of his was to make the central bank a knowledge-driven organisation. He wanted to de-mystify the governor's office and improved RBI's communication mechanism, which resulted in more frequent policy reviews and detailed expected outcomes of policy actions. His colleagues in the central bank said he spent considerable time with bankers, industry captains and other stakeholders for any policy decision.
