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HVR Iyengar as Governor of the RBI initiated the practice of
sending for junior officers and discussing issues with them. One
such matter referred to the author was whether the RBI was
obliged to accommodate the government. The author prepared a
paper on treasury–central bank transactions, which was sent to
the Finance Ministry. It was to be material in the evolution of
the RBI. The role of the Central Bank is determined largely by
the functions it performs in various countries. The Euro-zone,
UK and the USA have independent central banks, which are charged
with delivering stable prices and other economic objectives,
since popular governments, it is believed, are too easily
tempted into inflationary choices. Central banks have either
"instrument independence," where there is a target,
but the Bank has freedom on how to meet it, like the Bank of
England, and "goal independence," where it sets the
target too, like the German Bundesbank. Given the
"unauthorised overdrafts" of state governments not
matched by their funds, clearly the RBI has autonomy only
"within the government."
There certainly
was history in the making at the time. In 1958, Governor Iyengar
used the author’s draft paper suggestion for a refinancing
agency for utilising the Cooley funds, a part of PL-480
counterpart funds to encourage the private corporate sector in
India. He set up the Refinance Corporation, which later merged
into the Industrial Development Bank of India (IDBI). Shortly
thereafter the author, who used to publish anonymous letters in
Economic and Political Weekly (EPW) against the World Bank and
the IMF, was selected to be the IMF South Asia Division Chief.
On his return to
India he traces an interesting anecdotal journey from bank
nationalisation in July 1969 to helping set up the State Bank of
Mauritius to support the sugarcane farmers, the formulation of
the Lead Bank Scheme in India, and suggestions for
demonetisation of the Pakistani currency in the newly
independent Bangladesh. As Additional Secretary in the DEA he
supervised the "swing credits" with Russia and the
Eastern bloc and worked to prevent "switch trading,"
devised the interest tax and exported silver through the STC for
BoP benefits and examined the foreign exchange requirements of
the defence sector.
In February 1978,
after serving as RBI Governor, the author went to the World Bank
as Executive Director and to the IMF in 1980 in the same
capacity and played a critical part in the sanction of SDR 5
billion EFF loan from the Fund. Interesting nuggets dot the
narrative like how the Thal Vaishet fertiliser project lost
World Bank funding for switching consultants from the World
Bank-approved CF Braun to the Haldor Topso Snam Progetti
technology and how the then CBI Director T.V. Rajeshwar knew
that Prime Minister Indira Gandhi had risen from her seat to
shake his hand, when there was none except a chaprasi to
see him out, making the author wonder about the reach of the
CBI.
After a brief
stint in Delhi as Finance Secretary and after voluntary
retirement as Principal of Administrative Staff College of India
(ASCI), the author was to return as Vice-President of the Asian
Development Bank (ADB) to Manila. The author reports two events
in his tenure which were to convert the bank into "a Bank
for half the world." These were the entry of the Peoples
Republic of China as a full member and the commencement of ADB
lending to India.
The author, who
counts among his friends and colleagues Dr Bimal Jalan, Mantosh
Sondhi, Abid Hussain, Montek Ahluwalia and Y. V. Reddy, all
significant players on the Indian economic horizon, wrote the
book while convalescing after major neuro-surgery. For a book
written without notes or a diary, it’s a remarkable and very
readable account from one actively involved in policy
formulation, detailing the evolution of central banking and
India’s economic policy, relationships with international
financial institutions and major trading partners.
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CAMBRIDGE-Majlis
Annual Dinner: Chief guest High Commissioner Krishna Menon and guest
of honour Dr Todd, professor of chemistry who went on to win the
Nobel Prize. Krishna Menon goes against convention and in his
after-dinner speech gives a serious long account of India’s dams
and projects. Dr Todd responds with an anecdote of a white man and
an Australian aborigine. The aborigine was so impressed with the
white man’s gun that he threw away his boomerang, which on its
return felled him. Dr Todd used the parable to make the point that
India’s economic development should not be at the expense of its
traditional values, but the High Commissioner was not amused and
pulled up the author, then a student at St John’s College in
Cambridge and the president of the Majlis, for inviting Prof. Todd.
