Dialogue of the Deaf: The Government and the RBI by T.C.A. Srinivasa Raghavan

Author:T.C.A. Srinivasa Raghavan [Raghavan, T.C.A. Srinivasa]
Language: eng
Format: epub
Tags: Mobilism
Publisher: Westland Ltd
Published: 2017-03-20T00:00:00+00:00

THE QUEST FOR MORE MONEY

Post the assassination of Indira Gandhi in October 1984, a general election took place in November and in the new Congress regime led by Rajiv Gandhi, Pranab Mukherjee was dropped V. P. Singh made the finance minister. Singh would later turn viciously against Rajiv Gandhi for reasons that are still not fully known but for the time that he was finance minister—December 1984 till January 1987—he proved to be excellent.

The new government devoted 1985 to planning change and a break from the past. Relations between it and the RBI remained on a low-key and in accord because many of the things the RBI had been quietly suggesting were now finding favour with the government. But by the end of 1985, the usual strains started to surface, primarily over the size of the borrowing requirement of the government which wanted to spend more.

In 1986, the new finance secretary, S. Venkitaramanan who would, in 1991, come to the rescue of the country as RBI governor, looked around and found two possible sources for augmenting government revenue. One was the traditional one of imposing a higher SLR which would make the RBI give the government cheap loans; the other was the RBI’s profits. Malhotra, in a long and patronising note, said no to both. Malhotra’s argument against a higher SLR was that it would fuel inflation, and that, in his view, would leave less for the banks to lend out to medium and large industry which had large investment plans and working capital needs.

As to transferring RBI profits, he wrote that they were ‘different’ from the normal profits of other public sector companies. Anyway, he said, they were notional. Adding salt to the cut, he said even if he transferred the profits, it would be identical to increasing RBI credit to the government. He also said that higher transfers would impact the economy adversely that it should not consider this ‘as an avenue for augmenting resources’.

To top it all off, Malhotra decided to brief the prime minister directly who called off the meeting at the last minute forcing Malhotra to say it all to the finance minister and deputy chairman of the Planning Commission. Venkitaramanan fumed at the homily and a furious spat broke out. Eventually the government won. (In 2015, the RBI transferred almost Rs. 60,000 crore of these ‘notional’ profits to the government). But the last word had not been heard on the subject. Venkitaramanan raked it up again in 1988.

1987 had been a disastrous year for the economy and for Rajiv Gandhi personally. There had been a massive drought, necessitating large scale imports of sugar and edible oils which had a large weight in the food basket. These imports had been financed by short-term borrowings which had begun to shoot up sharply. Politically, Rajiv Gandhi’s original team had come apart. Arun Nehru, Arun Singh and V. P. Singh, three of his closest political allies, had gone out of the government. The Bofors scandal had broken out and Rajiv Gandhi was personally accused of taking bribes.

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