In the last couple of months before the end of the five-year term of Y Venugopal Reddy as RBI Governor, there were discussions in the UPA establishment on a potential successor. For long, governments had plumped for the Finance Secretary or the Secretary, Economic Affairs, when it came to choosing the chief of India’s central bank. But in mid-2008, discussions involving Finance Minister P Chidambaram and Prime Minister Manmohan Singh — himself a former RBI Governor — also took into account the prospect of bringing in an outsider. Finally, however, the decision at the political level was to not take a risk, and the government settled for its Finance Secretary, Duvvuri Subbarao.
In 2013, when Subbarao moved out in the first week of September, his successor, Raghuram Rajan, was already an Officer on Special Duty in the RBI for a few weeks. But the announcement of the new Governor has traditionally not been made too much in advance.
In December 1992, C Rangarajan was told he would succeed Governor S Venkitaramanan just a couple of days before his appointment on December 22. By that time, the government was under fire because of the securities scam and its handling by the central bank. Many lawmakers had criticised the RBI, and a Joint Parliamentary Committee had been formed to probe the scam. Given the political pressure, there were attempts to move the Governor out before his full two-year term got over, by offering him an assignment abroad.
But Venkitaramanan completed his term — unlike his predecessor R N Malhotra, a former Secretary, Economic Affairs, who, after finishing a five-year term got an extension from the V P Singh government in 1990, but was replaced with Venkitaramanan by the Chandra Shekhar government immediately after it took over. The unpleasant task of conveying the decision to Malhotra was left to Shekhar’s Finance Minister, Yashwant Sinha.
Much later, Atal Bihari Vajpayee’s NDA government too rushed through the appointment of Y V Reddy in 2003, after Bimal Jalan was nominated to the Rajya Sabha. Reddy was then an executive director on the board of the International Monetary Fund. The dilemma was that Jalan still had well over a year to go after the government extended his term. But the President had notified his appointment as a nominated MP — and a serving RBI Governor couldn’t attend the meetings of the Committee of the RBI Board in keeping with rules that bar lawmakers from being on the Board of the central bank. This prompted the Bank and the government to persuade Reddy to come over at short notice from Washington to take up the job well before the planned transition.
Before Jalan, Rangarajan too had left a little before his term got over — having been appointed Governor of Andhra Pradesh.
The practice of having an OSD and ensuring a transition in 2013 was an exception. There was a context — the Rupee was in free fall, and investors were betting against the Indian currency with huge twin deficits. The Ministry of Finance and RBI were engaged in firefighting. Raghuram Rajan recently recounted how, during that period as OSD, he went to various departments to discuss possible ideas and finally accepted an “idiotic idea” — to go in for a foreign currency deposit scheme, which he had opposed from the other side as Chief Economic Advisor.
There are many who back the idea of a transition to make the process smoother. But such an arrangement runs the risk of the incumbent Governor taking a back seat even when his tenure isn’t over. The package of measures which Governor Rajan announced within hours of taking over, and which was perceived later as helping to stabilise the currency had, in fact, been finalised much earlier between the government and the RBI. As Rajan also admitted recently, Subbarao had left it to him to announce it rather than doing it himself.
Rajan has been quoted as saying that he would have liked to see the clean-up of bank balance sheets before leaving. Bank of England Governor Mark Carney too had echoed this in an interview to the Financial Times. The context was whether Carney would stay beyond 5 years — his preferred term in a country whose central bank chief has an 8-year term. The David Cameron government, and especially Chancellor of the Exchequer George Osborne, had wooed him for long before Carney had agreed to take the job, subject to a shorter term. Manmohan Singh too had begun wooing Rajan back in 2009 — bringing him first as honorary advisor in the PMO before fulfilling, as he said in an interview to The Indian Express, a commitment to make him RBI Governor.
Unlike in 2013, there is no immediate crisis today to prompt a smooth succession. When Brexit happened, it seemed like a crisis that required the government to convey a clear succession plan to the markets. But nobody is bothered today — so Prime Minister Narendra Modi and Finance Minister Arun Jaitley can probably afford to take the appointment of the Governor down to the wire.
📣 The Indian Express is now on Telegram. Click here to join our channel (@indianexpress) and stay updated with the latest headlines