R B I GOVERNORS SPEAK

Perspectives on Central Banking—Governors Speak ; Published by Reserve Bank of India; Pages 498 ; Price Rs. 1400/-
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The Platinum Jubilee of an Institution is the most appropriate occasion to review its genesis, growth and prospects. This has been eloquently achieved by the book under review which was released by Dr Manmohan Singh, himself a Governor of RBI (1982—1985). Undoubtedly, this book will provide an appreciation of the Reserve Bank’s chequered history and its role in nation building.

Reserve Bank of India occupies a unique and distinctive place in the Indian banking and financial system. It is the monetary authority and central bank of the country and has been assigned wide powers and responsibilities to overview, develop and regulate the financial system. It was set up in 1935 under the Reserve Bank of India Act, 1934. Initially, its objective was, as the Preamble to the Act states, “ to regulate the issue of bank notes with a view to securing monetary stability in India and generally to operate the currency and credit system of the country to its advantage”. After Independence, the ownership of the Bank was transferred to the Government and it was assigned a developmental role as well, besides that of the regulator of the financial system. It is the banker to banks and also regulates the activities of banking, non-banking companies and the financial institutions in the country.

The main functions of RB I is issue of bank notes, transaction of government business, managing public debt, undertaking of transactions in foreign exchange as Controller of foreign exchange, keeping of cash reserves of banks, granting loans and advances to scheduled commercial banks and co-operative banks, granting of loans to other financial institutions, granting of advances to Governments, controlling credit and acting as the Regulatory and Supervisory Authority.

This compendium of key speeches of RBI Governors is the Reserve Bank of India’s tribute to its past leaders. Seventy-five years is a relatively short span for an institution. Even so, this journey from 1935 has been eventful for the Reserve Bank, shaping not only its intellectual evolution but also securing its preeminent position in the economic policy of the country. This period has witnessed momentous changes - a paradigm shift in economic ideology, ever new perspectives on economic development, growing aspirations of people, path-breaking financial innovations and game changing technological breakthroughs. All these are changes which influenced the Reserve Bank, and changes to which the Bank has responded in its own unique way.
The major events during these 75 years included several important developments both on the national scene and on the international front. Internationally, the aftermath of the Great Depression of the 1930s ; the Second World War and the consequent challenges of war financing ; the establishment of the new International monetary system in 1944 ; the rule of the gold standard and the rude oil price reverberations of the 1970s ; the Third World debt crisis of the 1980s ; the Asian crisis of the mid-1990s and most recently the global financial turmoil.
Within the country we began with the launching of five-year plans; and the stark challenges posed by the most ambitious and gigantic experiments in economic development, the after-effects of the two wars in the 1960s, the devaluation of the rupee in 1966, bank nationalisation in 1969, the balance of payments crisis of the early 1990s and the follow on path-breaking economic reforms that marked a paradigm shift in our economic policy. The Reserve Bank has played its role admirably in addressing these developments, responding to them with sensitivity, professionalism and integrity.

The high esteem in which the Reserve Bank is held today owes much to the intellectual leadership and vision of successive Governors. The speeches in this compendium are a testimony to that. They mark a journey through time and provide a glimpse into the ideas, issues and concerns that were inextricably intertwined with the Reserve Bank over this period.
The wide-ranging themes covered by the speeches - monetary policy, external sector management, issues in the financial sector and the real economy, economic development and poverty reduction, regulation of banks and financial markets and challenges of managing economic policy in a globalizing environment – indicate clearly the role played by the Reserve Bank and its continued commitment to public good.
The basic objectives of economic policy have remained roughly the same, growth with stability and social justice. The Reserve Bank has played a very important role in drawing the attention of our country to make our credit system more sensitive to the needs of our farmers and our rural community. It was instrumental in setting up a whole lot of institutions and diversifying the financial system. The more inclusive financial system that we now have owes a great deal to the innovative ideas emerging from the Reserve Bank.
RBI had 22 Governors from the first Australian Osborne Smith to the latest Dr.Duvvuri Subbarao. The terms of Governors have varied from eight years to just 22 days. Some Governors did not make a speech and the book under review has 32 speeches by 18 Governors. The speeches and the quotes are embellished with the track history of India’s economy. Obviously, in a brief review, one cannot cover all the speeches. We select a few. The first Indian Governor C.D. Deshmukh’s speeches are noted for their extraordinary clarity, felicity of expression and grace of style. His lecture on “Central Banking in India : A Retrospect” is a racy account of the evolution of the Bank, the deliberations at Bretton Woods,, the pow-wows between the Finance Member and the Reserve Bank authorities on the inflationary situation following depression, the rupee-shilling ratio, his own appointment as Governor. Deshmukh’s description of his predecessor James Taylor is worth recalling, “His intelligence was like a lambent flame which illumined everything that it touched and purged it of dross, and he had a catholicity of interest, a breadth of outlook and a warm humanity which I have seldom seen equalled ”.

Shri P.C.Bhattacharyya was the Governor during whose tenure the Indian rupee was devalued. In his B.F.Madon Memorial lecture on “Monetary Policy and Economic Development” he offers a masterly analysis of the objectives of monetary policy so devised that distribution of credit conforms to the pattern of investment. Monetary policy, stressed the Governor, must concern itself with the appropriate qualitative influence on productive activity. It is an inalienable aspect of the State’s intervention in the economic process and must naturally be attuned to the larger economic objectives of the State.

Perhaps the most visionary Governor is the present Prime Minister. During Dr Manmohan Singh’s tenure, comprehensive legal reforms of the banking sector led to the introduction of a new chapter in the Reserve Bank of India Act. His speech on “Indian Banking System in the Seventh Five Year Plan” is a thorough analysis of the problems faced by the banking industry, the challenges and the opportunities and the need to change structures, systems, procedures and work practices that will ensure that the banks discharge successfully their expanded responsibilities.

We are led to the groves of academe as we read the two speeches of Dr C.Rangarajan, a distinguished member of I I M. The M.G.Kutty memorial lecture on “Autonomy of Central Banks” is a scintillating analysis of the background to autonomy of central banks in foreign countries. We are then led on, step by step, typical of an I I M professor, about the Indian experience from the days of Sir Jeremy Raisman, nationalization and its aftermath, the Chakravarty Committee report, etc. Autonomy, declared Dr.Rangarajan, is not unrestrained. In a democratic set up it can and will always be subject to policy directives either from the Government or the legislature.
A heartwarming lecture included in the volume is the one given by Dr.Y.V.Reddy to the villagers of Karamchedu originally delivered in Telugu. He explained in simple terms “What RBI means to the Common Person”. Using simple terms the Governor advised the villagers what they can expect from such a powerful institution. This shows the human face of RBI.

This compendium provides an appreciation of the Reserve Bank’s eventful history and its contribution to nation building. It also highlights the need for the Reserve Bank to pursue the frontiers of knowledge even as it remains sensitive to the core concerns of the emergent market economy, but one which is still home to crores of poor people.

P.P.Ramachandran,
22-02-2010