Home >opinion >Crusader for central bank autonomy

A quintessential central banker who strongly espoused the cause of autonomy of the Reserve Bank of India (RBI) and a doyen of monetary policymaking in its classical rule-based mould, S.S. Tarapore is no more. His end came coincidentally on the day the monetary policy review was unveiled by RBI governor Raghuram Rajan on 2 February. For many of us who worked with him in the RBI, his demise means a great personal loss: he was a friend, philosopher and guide. His appearance was deceptive —his serious demeanor overlaid a heart of gold.

We first met around the mid-1960s as coordinators at a seminar addressed by professor J.R. Hicks at the University of Bombay. I joined the RBI in September 1969 and was posted to the Calcutta office in 1972. Late that year, Tarapore visited Calcutta on his way to Bangladesh as an International Monetary Fund (IMF) official and went out of his way to advise me as to how to provide market intelligence reports. In 1976, on my first visit to Washington D.C. for a training programme at the IMF, he introduced me to the type of work he did.

He worked mostly in research and monetary policy departments till he became the executive director in 1989. His notes on different files were always pointed and strewn with policy implications. Many a times, his views were at variance with the final outcome. But as a disciplined soldier of the central bank, he accepted the official positions and supported them. His guidance to me as head of research in the writings of the annual report and other publications was invaluable, considering the fact that he had to necessarily sit late to complete the day’s tasks. We often met during the after-office hours to discuss policy and economic issues and in the process discovered that we both liked the writings of David Ricardo, Knut Wicksell and Friedrich von Hayek, to name a few. We were also sympathetic to the idea of a wage-goods gap that was espoused by professor P.R. Brahmananda of the University of Bombay.

Very few know the role he played in ensuring that India accepted the obligations under Article VIII of the IMF in 1993. I had the privilege of working with him on the matter. He partnered with former RBI governor C. Rangarajan in furthering financial reforms, having had the benefit of discussions at the committee headed by M. Narasimham on financial sector reforms in the early 1990s. He quietly shaped the establishment of the Board for Financial Supervision, not merely banking supervision. He contributed to the debate on autonomy of the central bank, a subject on which Rangarajan gave a most lucid exposition through the Kutty Memorial Lecture, and fashioned an agreement with the government of India on the demise of the system of ‘ad hoc’ treasury bills. His own view was that the system of ad hocs led to the government of India freely sourcing funds from the RBI and financing the fiscal deficit, thereby contributing to inflationary tendencies. Once the RBI credit to government was under check, the RBI could manage to keep bank credit to the commercial sector in a way that the supply and demand for commercial credit could be matched without hurting growth. His contribution to the second volume of RBI history was phenomenal.

On demitting office, he headed the group on capital account convertibility and advocated a cautious and gradual approach to it. He held strong views on paying positive real interest on fixed deposits of banks. He was one of the few Indian economists who was all for price stability and strict fiscal discipline. He did not support the idea of paying interest on the reserves impounded under the cash reserve ratio and argued for gradual relaxation of both the cash reserve ratio and statutory liquidity ratio. He was instrumental in organizing and overseeing the work of the internal debt management. He took active interest in foreign exchange reserve management and guided actions towards market-based foreign exchange rate determination. He supported moves to mobilize gold with incentives and supported the recommendations of the K.U.B. Rao working group on the subject. His regular columns, first in the Business Standard, and later in the Hindu Business Line as well as The Free Press Journal, covered all macro-economic and financial stability issues. He helped former RBI governor Y.V. Reddy work towards monetary policy decision-making in gradual steps.

In more recent times, he was a trenchant critic of some of the major recommendations of the committee on financial sector legislation that impinged on the autonomy of the RBI. He was aware that no central bank can function efficiently without support from federal governments. He, therefore, advocated laying down definitive rules of conduct of macro-policy management. His views on inflation targeting were close to those of former governor D. Subbarao. He brought out collections of his published columns.

Very few knew that he played a key role in ensuring that retirees get some medical assistance after retirement. He worked for a balance between seniority and merit for fostering harmonious relations among the staff members.

He was encouraged by his elders to pursue engineering, but fate had decreed otherwise. He became an economist and a good one at that to serve the people around. His writings and speeches will be missed, but his reasoning will last for a long time.

Asuri Vasudevan is former executive director of the Reserve Bank of India.

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