The Government and the RBI: Two Tale Tango (TTT)

T. C. A. SRINIVASA-RAGHAVAN writes, but rather old jokes of government politics and RBI politics. While the first para may include his part also.

“One only has to look at the financial newspapers (and columns by a few misguided economists with a touching faith in the markets even after they have so visibly and disastrously failed after the Lehman disaster) until mid-January to see how not just the Finance Ministry but also its pet economists had been behaving like those fellows who fire guns in the air during North Indian marriage festivities. It was triumphalism, pure and simple. 

Indeed, in November one very senior government functionary had even said to me, with a chuckle of deep satisfaction, that the RBI now had to take the Government’s permission even to go to the toilet. He had been having a running battle with the RBI — which he had mostly lost — for the last four years. So I suppose his glee was in some senses understandable. 

Only a few days after the current Governor took over in the first week of September, one member of the RBI’s top echelon had made it clear to the then Finance Minister that some of the statements he was making, especially in regard to the health of Indian banks, were uncalled for. He was ignored. The Finance Ministry also set up the liquidity committee — or some such creature — that it wanted to control. The snub to the RBI could not have been more public or more direct. The message to it was that it should either move or get out of the way — shape up or ship out. In the event, the committee met once or twice and then faded away. But the damage had been done. 

Another step was the series of meetings that the Finance Minister called with economists who had never run policy but who had opinions on everything under the sun. 

There were several directors of think tanks in this group and even one or two traders present during the meetings. Everyone was unanimous that the RBI was the problem, not the solution. 

Our political and intellectual leaders can sometimes behave extremely foolishly and this anti-RBI episode is a good example of that”.