(This story originally appeared in on Jul 09, 2017)

had one of the longest stints in RBI, first as deputy governor, then as governor. He was in the finance ministry when India was battling the 1991 crisis and was helming the central bank when the 2008 global meltdown was about to peak. Nine years later, Reddy has given an insider’s view in his memoir, Advice & Dissent: My Life in Public Service. He talks toabout the governor’s role, farm loan waivers and restructuring of public sector banks:It’s a very sensitive point. I have quoted IG Patel (former RBI governor) who said that sometimes the governor may have to mobilise public opinion if the political leadership due to political compulsions is going in one direction. But there can be no crossing the boundaries. Then, you have to withdraw. I believe that I was correct on the statement on the Tobin tax. (His reference to a financial transactions tax in 2005 resulted in a market freefall.) Even the then finance minister ( P Chidambaram ) said on TV that the governor had clarified that it was an academic opinion. When the market was still not satisfied, the FM came back and I backed off because Tobin tax is a fiscal measure which has implications for the financial sector. You should be cautious, you should be aware of the consequences and you should be aware that the boundaries are thin and it depends on the context. You can’t appear to be critical of the government but you can be debating or questioning some of the policies of the government. The language is also important — don’t involve the government, involve the idea.Absolutely. What is essential is that he should make sure that he communicates, instead of the others communicating. Where there is an overlap, with fiscal matters or macro-economic stability, you can comment but you cannot be critical because they are not under your jurisdiction. Beyond this, it’s best to keep our mouth shut.I felt that it has really serious consequences for agriculture. The first priority for me was to protect the banking system, so I insisted that the government pay on behalf of the farmers and not give instructions to the banks to reschedule loans. The second duty was credit culture, on which we had an argument. Although once a decision is taken there is not much point being critical because it’s not a technical decision but a broader one.Look at it from the agriculture point of view. The government talks about giving irrigation, power, good-quality seed and good prices in the market. But everything is uncertain and there are huge risks. Yet, the farmer goes about doing his business . The credit culture argument cannot be confined to agriculture. If you look at the totality of the burden, it is more transparent as it comes from the government. Whereas there (loan settlements for industry) it comes from banks. That is why I always said that when a poor man gets government money, it’s called subsidy , when a rich man gets government money, it’s called incentive.In recent years, their growth has been slower. But even if it is 55-60%, it is not small. The idea that you consolidate, restructure and sell is wrong. We are having a problem in managing them, how do you think you can restructure better than the other fellow? Plus, the person who is buying will have the option to restructure. He has the capacity to optimise. So when the market is bidding, it knows the potential for growth and they are going to use that potential without the constraints of regulations of public sector banks. The other problem is that in the name of restructuring you will be writing off a lot of things. So, if you sell now, you will get a lot of money for the simple reason that whatever restructuring is to be done the markets know better. Best is to sell on an as-is-where-is basis. Apart from the efficiency of the banks, the taxpayer should be asking the question, why are we providing capital?One possible option is to convert all banks into a company. The government will have the option to increase or decrease the shareholding. Then, what is the objective of the government? Say, it is to provide banking services in backward areas; then identify the banks that will do it best and give them money. And the others, which may be making a profit, say in Gujarat, can be sold. That money can used for a bank that is active in UP or Bihar. Once that flexibility comes, there is an incentive to improve efficiency. It will not be privatisation. It will be a true mixed economy — a mix between private and public shareholding. It will be based on the dynamic requirements of the economy.