REDDY  MEMOIRS 

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Advice and Dissent by Dr.Y.V.Reddy ; Published by Harper Collins;  Pages  479 ; Price Rs.795/-

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Dr.Y.V.Reddy was Governor of the RBI from 2003 to 2008. He was Chairman of the Fourteenth Finance Commission in 2013-14. He worked as Secretary in the Ministry of Finance and earlier as Principal Secretary of the Andhra Pradesh Government. He was honoured with the Padma Vibhushan. His current assignment is Professor at the Centre for Economic and Social Studies in Hyderabad.

The book under review is not restricted to his halcyon years in  RBI but goes beyond to encompass his life as a whole. It reveals how one individual growing up in India has been impacted by the struggle for Independence, the Integration of Princely States, Nehruvian socialism, the States Re-organisation, the regularly held Elections and the four wars forced on us by the enemy. The book analyses the transformation of India since 1947. Reddy gives us a reassessment of the relative roles of the Market and the State and an appreciation of the importance of incentives and  intentions. Reddy claims that his  work with Andhra Government was useful in his stint as  RBI Governor and Finance Commission Chairman.

Dr. Reddy’s life has been an inspiring journey of personal triumphs and a fascinating professional career, Over hundred pages are devoted to his village, early education, enrolment in IAS and his work as Collector. A chapter is devoted to Chief Minister N.T.Rama Rao.

The Reserve Bank of India is one institution where it is entirely up to the Governor what to make of its ‘institutional’ autonomy.  There is an important rationale for this autonomy and Governor Reddy explains it succinctly: “The governments in market-oriented economies want central banks to appear to be independent and apolitical. The philosophy is that the authority that creates money should ideally be independent from the authority that borrows and spends money, namely, the government.”

The RBI has many advantages, of strong technical competence, professional skills and an institutional memory. RBI had governors who protected the bank’s autonomy and enhanced their own moral stature.

 Dr Reddy has worked closely with Manmohan Singh, Singh, C. Rangarajan, Bimal Jalan. As RBI Chief from 2003 to 2008 (he was earlier Deputy Governor) Dr. Reddy oversaw a period of high growth, low inflation and a build-up of foreign exchange reserves coupled with a steady rupee and a robust central banking system that withstood the global financial crisis. Nobel Laureate Joseph Stiglitz gave Reddy a Certificate--"If America had a central bank chief like Y.V.Reddy, the U S economy would not have been in such a mess."

Reddy  famously described the RBI as “totally free, within the limits set by the government.Reddy also touches upon his time as a bureaucrat during the Plan era, being in the thick of action during the 1991 balance of payments crisis, and his years as governor during the boom preceding the global financial crisis.

“...I was continuously associated with the design and implementation of measures intrinsic to these historic events – events that saw our country move from despondency in 1990 to hope in 1993."

According to  Reddy there are three overlapping spheres of activity in the RBI-government relationship – operational issues, policy matters and structural reforms. In operational matters, Reddy says that he insisted on having the freedom to decide. On policy matters, he was particular about consultations to avoid discord. On structural issues, he believed in close coordination.

Reddy details a number of instances where he had to take a stance opposing the government. The issue concerned opening the banking system to foreign ownership, which came to a head with Chidambaram in 2008. Reddy recounts  his meeting where the Finance Minister told him: “Governor, this is a national commitment made to global financial community. How do we justify reversal of such a policy? Is it just because there is a change in the incumbency of the government? Do we review our commitments every time a governor or the RBI changes?”

Reddy  told him that “it has serious irreversible consequences. I believe it is better to go back on our commitment at this stage, in national interest.”

“But I believe that it is in our national interest,” Chidambaram was quoted as telling the RBI Governor.

Reddy writes that he confided his troubles to then Economic Affairs Secretary Rakesh Mohan." Rakesh", I told him,

  "It is better I leave this job. I believe that the issue is very critical to our national interest. I think opening up of foreign banks should not be done at this stage at all..“So, better I quietly leave the job,”

He writes that despite Chidambaram’s unwillingness to relieve him as Governor, “I felt that there was a growing distance between us as months passed by. His (Chidambaram) image as a reformer pushing for double-digit growth was, in his view, being dented by my caution to the extent of resisting implementation of some of his policies,” When he met the minister, Chidambaram said the RBI was not adequately reciprocating by progressing with reforms. “I expressed my unconditional apology to him and conveyed that I would keep in mind the issue of being supportive,” Reddy said, describing how the matter ended.

Reddy writes: “Most of our tensions could be described as constructive or as discord that ultimately gave rise to better ideas or outcomes.”

Reddy in his book expresses disappointment over the inability to make greater progress in reforming public sector bank governance.“...most of the basic structural issues of the financial system, especially that of the public sector component of the banking system remain unaddressed,” 

 Reddy recounts “ P. Chidambaram and I were in agreement on the broad directions of the reforms in the financial sector, that is, broadly rebalancing in favour of markets and designing a monetary regime and a financial sector that would serve the country in terms of higher growth with stability.”Chidambaram demonstrated considerable consolidation in the fiscal arena and felt that reforms and liberalisation in the financial sector are slower than the progress in fiscal consolidation.

 Another contentious issue was that of farm-loan waivers, that continues to be controversial.

“I opposed the proposal made in February 2008 to write off loans to farmers amounting to Rs 60,000 crore. I argued my case before the Finance Minister. Economic logic including preservation of credit culture was in favour of RBI’s position,” Reddy says. “I could see the government was acting out of broader concern for the welfare of farmers. I suggested that the government should pay the money to the banks on behalf of the farmers.”

Reddy gives a pen-picture of RBI Officials. He writes,”...my predecessor, Mr.Tarapore,  was respected for his knowledge, admired for his integrity, and feared for his forthrightness. I felt that his qualities shone like gold. Tarapore and I overlapped for a few weeks, but he remained my friend, philosopher and guide for almost two decades after, till his death.” Others who get  high certificates from him are A.Seshan,Shyamala Gopinath, Usha Thorat, Kishori Udeshi, K. Kangasabapathy.

 There are  55 pages of notes—highly valuable material for an Official History. This book is a valuable addition to the literature on history of India banking.

P.P.Ramachandran.

09 / 07 / 2017