New Delhi:

Former RBI governor Duvvuri Subbarao recalled in his memoirs that the finance ministry under Pranab Mukherjee and P Chidambaram had Put pressure on the Reserve Bank of India to lower interest rates and present a more optimistic growth outlook to boost market sentiment.

Subbarao writes in his new book “Just a Mercenary?” : Notes on My Life and Career” also wrote that the government has a “lack of understanding and sensitivity” to the importance of central bank autonomy.

“Having served in both the government and the Reserve Bank of India, I can say with authority that there is a lack of understanding and sensitivity within the government about the importance of central bank autonomy,” he said in the book.

Mr. Subbarao served as Finance Minister (2007-08) before taking over as RBI Governor for a five-year term on September 5, 2008, days before the Lehman Brothers crisis. On September 16, Lehman Brothers went bankrupt, becoming the largest corporate failure in history.

In a chapter titled “Is the Reserve Bank a cheerleader for the government?”, Mr. Subbarao recalled that the pressure on the government was not limited to the Reserve Bank’s stance on interest rates. At times, it forces the RBI to come up with optimistic growth and inflation estimates that differ from our objective assessment.

“I remember one such occasion when Pranab Mukherjee was finance minister. Finance minister Arvind Mayaram and chief economic adviser Kaushik Basu Basu) challenged our estimates with their assumptions and estimates, and I take it for granted,” he wrote.

Subbarao said he was disturbed that the discussion moved almost seamlessly from objective arguments to subjective considerations, suggesting that the Reserve Bank must forecast higher growth and lower inflation in order to share the “support burden” with the government. “Responsibility. Emotions are running high.”

“Mayaram even said at one meeting, ‘While governments and central banks elsewhere in the world are cooperating, in India the Reserve Bank is very stubborn,’” he recalled.

Mr. Subbarao said he was always disturbed and annoyed by demands that the RBI should be the government’s cheerleader.

“I am frustrated that the Treasury would seek higher growth expectations while advocating for a more dovish stance on interest rates without seeing a clear inconsistency between the two demands,” he wrote.

The former RBI governor noted that he had taken a firm stand that the Reserve Bank could not deviate from its best professional judgment just to manipulate public sentiment.

“Our forecasts must be consistent with our policy stance and revisions to estimates of growth and inflation would undermine the Reserve Bank’s credibility,” he noted.

Mr. Subbarao also noted that it was interesting, and even somewhat reassuring, to note that tensions between governments and central banks were not unique to India or emerging economies, but existed in rich countries as well.

He also recalled that he had quarreled with Mr Chidambaram and Mr Mukherjee over the RBI’s policy stance, and despite their different styles, both had invariably called for lower interest rates.

“Chidambaram usually argued his case like a brilliant lawyer, while Mukherjee was the quintessential politician,” Subbarao wrote.

Mr Mukherjee made his views known and let his officers argue his case, he said, adding that “the end result was an uncomfortable relationship”.

The former RBI governor recalled that soon after Mr. Chidambaram returned as finance minister from the home ministry in October 2012, he began in earnest to reverse the fiscal profligacy of the Mukherjee regime, possibly to compensate for The austerity policies he is implementing. .

“Therefore, he is very keen to implement a looser monetary regime and put intense pressure on the Reserve Bank of India to lower interest rates. But for objective reasons, I cannot force him,” Subbarao wrote.

The former RBI governor said his refusal to fall in line apparently so unnerved Mr Chidambaram that he did something highly unusual and atypical, publicly expressing his strong disapproval of the Reserve Bank’s stance .

“Economic growth is as much a concern as inflation,” Chidambaram said at a ‘front door’ media interaction outside North Block, about an hour after the Reserve Bank issued a hawkish policy statement and expressed concern over inflation. The government walks alone and we will walk alone in the face of the challenges of growth,” Mr. Subbarao recalled.

The 74-year-old also recounts his journey—his hopes and despairs, his successes and setbacks, his mistakes and misdeeds, and the lessons he learned along the way—through his memoir in a rare Be forthright and honest.

Mr Subbarao started his career as sub-collector in Parvathipuram division in north coastal Andhra Pradesh back in 1974. What it needs most is an understanding of poverty.

Nearly 40 years later, in 2013, Mr. Subbarao, who served as RBI governor during a raging exchange rate crisis, understood the serious challenges emerging economies face in an unequal world.

Mr. Subbarao is currently a senior fellow at the Jackson School of Yale University in the United States.

(Except for the headline, this story has not been edited by NDTV staff and is published from a syndicated feed.)