Former RBI deputy governor S.S. Tarapore dies at 803 min read . Updated: 05 Feb 2016, 03:10 AM IST
A career central banker, Tarapore joined the RBI in 1961 and retired in 1996 as deputy governor
Mumbai: S.S. Tarapore, former deputy governor of the Reserve Bank of India (RBI) and a noted economist, passed away in Mumbai on Tuesday. Tarapore had been in hospital in Mumbai for the last few days, and breathed his last on Tuesday morning. He was 80.
A career central banker, Tarapore joined the RBI in 1961 and retired in 1996 as deputy governor, having been involved in almost all aspects of monetary policy. He served as RBI deputy governor between 1992 and 1996 when C. Rangarajan was the governor. This was a period of rapid change for the Indian economy, with the government having introduced economic reforms in 1991.
Tarapore is known among central bankers and economists as an economist who had strong views on issues—ranging from inflation to capital account convertibility. These views were reflected in RBI policies during his tenure and they continued to be influential even after his retirement through columns that he wrote in various domestic publications.
RBI governor Raghuram Rajan said in an e-mail statement: “Shri Tarapore was an extremely well regarded central banker, particularly in the areas of economic research and monetary policy. His contributions as a member on the two Narasimham Committees set the tone of first generation reforms in the financial sector. The road map he enunciated for India’s journey toward capital account convertibility in the report of the Committee on Capital Account Convertibility of which he was the chairman, though much criticized initially, was accepted later by the world as the way to go on the road to convertibility."
Tarapore’s work on capital account convertibility continues to be well remembered and cited even in today’s context. In 1997, after his retirement from the RBI, Tarapore was appointed chairman for the committee on capital account convertibility. The committee helped lay down the framework of preconditions essential for India to move to fuller capital account convertibility—an objective that the country is still moving toward.
Usha Thorat, deputy governor at the RBI between 2005 and 2010, remembers the extensive research that went into the framing of those preconditions. The research focused heavily on international experience and literature and drew a link between capital account convertibility and financial sector stability.
Among the preconditions set by the Tarapore committee for fuller capital account convertibility was a reduction in the gross fiscal deficit to GDP (gross domestic product) ratio, a steady and contained inflation rate and a decline in the level of non-performing assets of the banking sector.
“One of the key takeaways of the research was the link between the financial sector and the external sector," said Thorat while recalling the work of the committee on capital account convertibility.
Tarapore was also known as an inflation hawk, chiding policymakers through his public comments and writings for being too lax on inflation control.
“He believed that inflation control was the dharma of a central bank," recalls Thorat.
In fact, in 2000, a committee headed by M. Narasimham, which included Tarapore as a member, suggested that the government mandate an inflation rate for the RBI. Nearly 15 years later, the RBI signed a monetary policy agreement with the government which mandates that the RBI bring down inflation to 4% (+/- 2%).
While commenting and writing on the new monetary policy framework, Tarapore took exception to proposals that the monetary policy committee, which will be responsible for setting monetary policy, should have more external members than RBI members.
“The FSLRC (Financial Sector Legislative Reforms Commission) recommendation is insidious in that it is a blatant attempt to make things awkward for the RBI by holding it accountable for the decisions of the external members. If the RBI is to be accountable it should have a majority of executives on the MPC," Tarapore wrote in Business Line newspaper on 19 March 2015.
Tarapore also opposed the appointment of a government executive on the monetary policy committee, even without voting rights, saying that “big brother" can have an “overbearing dominance on the working of an institution." The government is still to formalize the structure of the monetary policy committee.
“The Reserve Bank will always remember Shri Tarapore fondly and will be guided by the inspirational example he set," Rajan added in his statement.