As finance secretary, Garg rubbed too many the wrong way

Owing to Finance Minister Nirmala Sitharaman being new to her role, a number of crucial announcements in the Budget bore Garg’s imprint, especially the decision to borrow in overseas markets, reduce the fiscal deficit as a percentage of gross domestic product, and resort to off-Budget borrowing to meet that target, says Arup Roychoudury.

The notification formalising the first major bureaucratic reshuffle under the present government on Wednesday evening was a surprise. However, Finance Secretary Subhash Chandra Garg’s exit from North Block wasn’t, as the buzz on his departure had been gaining traction in bureaucratic circles for a few months now.

Owing to a number of factors, Garg -- a 1983 batch Rajasthan cadre officer -- was seen as one of the most powerful finance secretaries in recent times.

A number of officials who spoke to Business Standard immediately after the 2019-20 Union Budget said that owing to Finance Minister Nirmala Sitharaman being new to her role, a number of crucial announcements bore Garg’s imprint, especially the decision to borrow in overseas markets, reduce the fiscal deficit as a percentage of gross domestic product, and resort to off-Budget borrowing to meet that target.

But there were other reasons why Garg was seen as influential. Certainly, his tenure in the finance ministry has been an eventful one. He took over as economic affairs secretary in July 2017, succeeding Shaktikanta Das, and was designated finance secretary in March this year after the retirement of Hasmukh Adhia.

“Garg had taken on Urjit Patel and won in a way, he took on Viral Acharya. Now he has taken on the Jalan panel and Sebi. Chakraborty will have his work cut out once he takes charge,” a senior government official told Business Standard after the news of reshuffle became public.

Atanu Chakraborty, currently secretary of Department of Investment and Public Asset Management, has been appointed as Garg’s replacement to head the economic affairs department. He is a Gujarat cadre 1985 batch officer and has worked with Prime Minister Narendra Modi during the latter’s time as the state’s chief minister.

Officials say that one of the first things Chakraborty will have to do after becoming economic affairs secretary is rebuild some bridges.

“The tussle with the other members of the RBI panel on economic capital framework has gone a bit too far. He will also have to ensure that there is an amicable resolution with the Securities and Exchange Board of India on the issue of reserve funds,” said a second official.

Earlier this month, Sebi Chairman Ajay Tyagi wrote to to the finance ministry, seeking a review of the Budget proposal that mandates transferring 75 per cent of the market regulator's surplus funds to the central government. The proposal was said to be Garg’s idea, to “address the issue of accumulation of huge surplus funds” with Sebi.

Recently, some of the members of the Bimal Jalan Committee were seeking to convince Garg to tone down his strong dissent note, which will be part of the panel’s report. Garg did not attend a meeting of the committee and did not shift his stance till the very end. The panel is expected to submit its report to the central bank soon.

The very fact that the Jalan  committee was set up, has its genesis in an internal finance ministry note drafted by Garg's department of economic affairs.

Three letters sent by government to the RBI last year, which referred to Section 7 of the RBI Act, were said to have been written by Garg. The points of contention for which Section 7 was referred to, were easing of Prompt Corrective Action framework, concessions for power sector non-performing assets, and transfer of reserves.

Things really blew up from there. In late October, the then RBI deputy governor, who incidentally demitted office just earlier this week, had delivered a scathing speech and made a strong case for granting more independence to the RBI. He said that the governments that did not respect their central bank's independence would sooner or later incur the wrath of financial markets, ignite economic fire, and come to rue the day they undermined the regulatory institution.

A week later, Garg tweeted: 'Rupee trading at less than 73 to a dollar, Brent crude below $73 a barrel, markets up by over 4 per cent during the week and bond yields below 7.8 per cent. Wrath of the markets?' He was later reprimanded by the then Finance Minister Arun Jaitley and Finance Secretary Hasmukh Adhia for that tweet.

 As he moves to the power ministry, Garg has his task cut out. The ministry has a long list of reforms agenda.