RBI’s deputy governor reflects on his move from outsider to insider, from credit-rater to credit-provider.
.jpg "Subir Gokarn")
Subir Gokarn looks uncomfortable, surrounded by a bunch of youngsters, probably liaison staff from the local office sent to escort the RBI deputy governor while in Delhi. I wave across the spacious lobby and as we get closer, it’s irritation I see: “I’m on a private visit,” he’s telling the human wall around him. “No, I’m not going to talk to any journalist … I mean I am, but this is a private lunch,” he tells them as we shake hands. Journalists, it dawns on me — at the Taj Palace hotel for a CII event, they’re smart enough to recognise Gokarn and figure out he’s good for a quote. So what’s their favourite line? “Is RBI behind the curve? What else?!”, Gokarn grins as we walk up to the Vietnamese restaurant Blue Ginger, writes Sunil Jain.
If Gokarn’s a bit off, it’s not just because he’s had to wear shoes instead of more comfortable open-toed sandals — Blue Ginger, I’m told while making reservations, doesn’t allow open-toed sandals. Now that his daughter’s finished her Class X and the family is moving to Mumbai, he’s just been to his bank to close his account. Without having to throw his RBI card around, he’s hoping. When it takes forever, and he does, it’s of little help since, having been told Gokarn’s got a job with RBI, the official asks him why he doesn’t ask for a Delhi posting!
Gokarn’s going-to-RBI stories, of course, go back some time; to when the cops came to his IFS apartment complex for the usual verification, and insisted that only male neighbours be asked to do this. The next time the cops came, they wanted a photocopy of his passport, but since he didn’t have a xerox, the cop was nice enough to take him on his bike. Where’s the spare helmet, Gokarn asked. “… arre sir, you’re with me.” How’d you get that nasty wound on the head, Gokarn enquired the cop. “…there was a hole in the road which I didn’t see.” Welcome to India!
So what’s it like in RBI, I ask, as we get our starters — some really delicious coconut-flavoured shrimp pancakes and a very thin beef steak rolled on a stick and with some very delicate Mediterranean-type flavouring. The steak is mouth-watering and I’m hoping, with luck, Gokarn won’t have more than one piece.
The question is natural since, as an edit writer in the Business Standard (apart from his day job as the chief economist for Asia-Pac at Crisil/Standard&Poor’s), many of Gokarn’s edits were about what RBI should or shouldn’t do. To be fair, unlike fellow columnist Surjit Bhalla and, at one point, Ajay Shah, Gokarn’s never been a radical burn-them-at-the-stakes type of person; he’s been more the if-it-ain’t-broke-don’t-fix-it type. I get some spiel about the amazing knowledge that most people bring to the table, the well-organised nature of the machine (work on the credit policy begins weeks in advance with the modelling, the surveys, the consultations…). But since this is Gokarn, who’s not known for being loquacious in his praise, or criticism, for anyone, it’s obvious this is real.
Our main course, the “must-try” Pho, is a bit of a disappointment. The clear soup, with flat noodles (we have it with shrimp and river sole) and flavoured with onion, single star anise, we’re warned, is bland — but even the embellishments on the side don’t help. It’s probably an acquired taste — I’m dying for some more beef.
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What’s the big difference, I ask, between what he did at Crisil and what he does now; between being a private-sector person and a government one (Gokarn, for the record, began his career in the government, at the Bureau of Industrial Costs and Prices … so when the finance minister welcomed him to the government and Gokarn told him this, the FM was quick to respond, “Welcome back to the government!”). The essential difference between being an analyst and being at RBI, and I think I’ve broadly got this right, is “keeping in mind the possibility of the outcome not being on a deterministic path”. Wow! I’m completely blown by the deputygovernorspeak. The reason why you know it is deputygovernorspeak, and not governorspeak, is that you can still vaguely make out what he’s saying. Give him time, I guess.
My guest elaborates. As an analyst, he could constantly make changes to his forecasts (look at how credit-rating agencies move you to junk status just as you’re about to default). “There’s a huge difference between the first forecast and the last one …,” he says. Essentially, he elaborates, there’s a band of probability to each forecast at any point in time. “As an analyst, you see a curve … this is how growth is going to pan out … as an RBI person, I see a band of probabilities. Policy actions need to accommodate this, because you don’t have the luxury of changing course every time people decide to shift the curve,” Gokarn adds.
I ask him to comment on why RBI got its inflation forecast so wrong (T N Ninan’s column on this is out on the day we meet). There’s a communication issue here, I’m told. Everyone got the food part wrong and a fifth of WPI is directly or indirectly related to food. RBI essentially reacts to some kind of a notion of “core” inflation, but it has to put out numbers on WPI. So is the GDP deflator a better variable to use than WPI, I ask — given how low this is, using this will show RBI is certainly not behind the curve! Gokarn says, it comes out too infrequently for it to be of much use since you need to catch inflation on the turns.
Meanwhile, he’s getting RBI’s research departments to study what drives food prices (at Crisil, he’d started an index, DRIP, which tried to estimate crop production based on rainfall data); work is also being done on asset prices, in the context of an emerging post-crisis view that they should be considered in setting monetary policy.
Why hasn’t the corporate bond market taken off, I ask Ajay Shah’s favourite question — is it because RBI doesn’t want it to, because of its conflict as the government’s fund manager? Gokarn lists a bunch of factors, tax incidence being one of them, and then talks of the regulatory question — given RBI regulates the banks and the banks are the biggest players here, should RBI be regulating this market?
I get a bit of deputygovernorspeak when I ask if Goldman was guilty of betting against its clients, and we talk of how regulators are supposed to regulate something they don’t understand. Regulators, he says in all sincerity, are typically always behind the market — they learn from each crisis, lessons to prevent that crisis from re-occurring. There is clearly a case for a lot more lateral movement, of experts in various frontier areas moving into regulatory jobs. Should RBI, or any regulator, be staffed with such people? Well, apart from the obvious issue of compensation, you need to balance the internal and external expertise — you have too many outsiders, my guest says, and they lose out on the “connectivity” issue. A top banker becoming an RBI governor is logical, but this banker may not be meshed with the finance ministry and others in the government, which is an important pre-requisite for the job. RBI, Gokarn says, has generally managed the internal-external balance well since every major policy decision is based on inputs from working groups which involve private sector experts. But, more training for existing staff in frontline areas will obviously help....
Gokarn’s response on the need for a super-regulator, on an FSA-Bank of England type of separation of powers, and on a separate debt management office is along predictable lines. The Fed does both in the US while the UK has an FSA and a Bank of England — neither worked well enough to prevent the crisis, but having one combined authority ensured the US’ speed of response was faster; if the central bank has to do the eventual bailout, it is much better to give it some control over the banks in the first place. As for a separate debt management office, again, he says that both sides of the debate have a case. He’s a bit more forthcoming on the issue of a super-regulator — I point to the fight between regulators, not just Sebi and Irda, but the Forward Markets Commission and the electricity regulator on the issue of power derivatives, and there are a lot more such examples. Clearly, the current system where RBI heads the coordination of all regulators is not working. Gokarn agrees and says there’s a need to strengthen the process with suitable empowerment.
The lunch over, we swap some stories about Business Standard where Gokarn has played an active role — he’s the only person I know who has been on both sides of Lunch, having done one with Michael Carter of the World Bank for us in 2002 — for the past 10 years (this is off the record, but on my insistence, not his!) and of the relations between the finance minister and various RBI governors (Gokarn wants this off the record, not I). One thing that comes out crystal clear is not only is he enjoying his job which essentially allows you to put all your theories to test, moving to government is something every professional would benefit from — whether the government benefits as much from the experience, of course, is a different matter!
