Former finance minister P Chidambaram

Key Highlights UPA finance minister P Chidambaram had suo motu constituted a committee on liquidity management which irked Subbarao

The government had, for a brief period, inserted a condition of ''until further notice" in the appointment letters of the RBI chiefs

MUMBAI: The United Progressive Alliance regime interfered with the affairs of the Reserve Bank of India, used various methods to exert pressure and even struck back when the central bank tried to assert itself, former governor D Subbarao has revealed in his book.

The tell-all by Raghuram Rajan's predecessor shows different ways in which the government tried to exert influence over the RBI and how the finance ministry retaliated by rejecting reappointment of deputy governors Usha Thorat and Subir Gokarn.

The book, "Who moved my interest rate?", released on July 15 by Penguin, comes at a time when the spotlight is back on RBI's autonomy in the wake of BJP parliamentarian Subramaniam Swamy's campaign to oust incumbent Raghuram Rajan. This has led to a debate on why the government remained non-committal on defending or extending Rajan's tenure, which is seen as a trigger for his decision to exit.

The book is replete with instances of the UPA government's interference since as early as mid-October 2008 when the RBI was “dousing the system with rupee and forex liquidity“ to fight the crisis. Then finance minister P Chidambaram had suo motu constituted a committee on liquidity management with then finance secretary Arun Ramanathan as chairman and had asked the RBI to nominate a representative. “I was annoyed and upset by this decision.Chidambaram had clearly overstepped into RBI turf,“ says Subbarao, who decided against the central bank being part of the panel.

Another instance was when the government attempted to “keep the directors on board the RBI on leash" by rewording their appointment letters to 'until further notice' although the law gave them four years. It was only after the RBI highlighted the legal aspect that the government corrected this.

Subbarao also highlights what he describes as an 'unpleasant experience' involving former finance minister Pranab Mukherjee.

This was after the policy review in April 2012 following 13 rate hikes, Subbarao cut the repo rate by half a percentage point. “(Then) finance minister Mukherjee was scheduled to address a business chamber in Delhi an hour before the policy release time. As he was entering the meeting hall, he commented informally to the corporates and the media that surrounded and greeted him -that “the governor will shortly give you good news“. This was most inappropriate and indiscreet. I am positive that the finance minister did not intend any mischief; nor did he want to undermine the RBI. I think he was just being naive, overanxious to be the bearer of good news to the corporates in the midst of widespread criticism of policy paralysis in the government hoping that some of the credit for this would rub off to him,“ the book says.

Subbarao speaks of how in 2010 he approached Mukherjee to reappoint Thorat because of “competence and track record“ but the minister refused citing rules. This was despite a similar extension being granted to another deputy governor, Shyamala Gopinath, earlier. “Usha became part of the price we had to pay for asserting the autonomy of the central bank,“ says Subbarao in the book. The story was replayed in 2012 when the RBI requested Chidambaram to reappoint Sub ir Gokarn for two more years.“The reason he gave was that all of us who entered the RBI laterally had become hostage to the technocrats in the RBI and the government felt it necessary to bring some fresh thinking," the former governor said.

But despite differences with Chidambaram, Subbarao says he was mentally prepared to accept an extension before his term ended. “I had weathered the global financial crisis and was in the midst of fighting a raging battle against inflation. Going away at this stage would have felt like walking away from the battlefield,“ he says. Subbarao, who became the RBI governor in 2008, was granted a two-year extension in 2011.

