M Narashimam, a former Reserve Bank of India governor himself and chief architect of financial sector reforms, thinks that Bimal Jalan has been a great RBI governor.
In a farewell note to Jalan, Narasimham recently wrote: "You have not merely been a successful governor but, if I may say so, a great governor the likes of whom we have not had over the last 50 years. I believe you will take your place in the pantheon, along with the likes of James Taylor and C D Desmukh."
High praise indeed for a departing RBI governor. Not everyone may share that perception but Jalan has unquestionably left an indelible mark on Mint Street.
Business Standard caught up with Jalan on Saturday, days after his nomination to the Rajya Sabha was announced. Extracts from an interview granted to Tamal Bandyopadhyay:
Let me start by asking you the obvious. Why are you leaving for the Rajya Sabha?
There is no mystery. In terms of the financial and macro economic environment, things are in a very good shape now.
The rate of inflation is low, the drought is over, the monsoon is good, interest rates are the lowest ever and foreign exchange reserves are the highest. Isn't this the right time to go? One has to move on.
I have been here long enough. One of the longest tenures, as you have written, and I enjoyed this immensely. Now it's time to move.
Are you fed up with the job?
No, not at all. Whether you leave now or later, people have to move on. So it's a retirement from this job but not retirement from life and the economic world.
Was this leaving thrust on you?
No, not at all.
Why did you choose to become a Rajya Sabha member?
It is not for me to comment on these matters. It is entirely the government's decision which one should not speculate about. This is a great privilege.
What will you do at the Rajya Sabha?
Contribute to the debate as much as I can.
As part of the Bharatiya Janata Party's economic think tank?
No, I don't think so. I am not a party person.
You have had a very distinguished career. You were banking secretary, finance secretary, executive director at the International Monetary Fund and World Bank and finally member secretary of the Planning Commission before moving to the RBI. What was your most satisfying stint?
I have had an excellent experience at the Reserve Bank. My job in the finance ministry and industry ministry were good.
But from the professional point of view I had the most interesting time at the Planning Commission as its member secretary.
Why?
Because it has an all-India development dimension and it deals with all the states on all economic matters. We have a federal framework. There are so many development schemes for roads, irrigation, water supply.
We also started the best practices in different areas. It was not economics but developmental work and I learnt a great deal about the different dimensions of the states and different sectors in north-east, Jammu & Kashmir, Maharashatra, Karnataka. The entire country.
What was your most challenging task at the Reserve Bank?
The Asian crisis. That was the time I took over. It was a new job for me.
We went ahead with the Resurgent India Bond programme, for example, offering a market-related price (for the bonds) and took several other measures which conventional wisdom could not have approved. This was the most challenging time.
How did you tackle the crisis?
In the usual way through consultations with my colleagues at the RBI and the government. It was a cohesive action which was executed in perfect harmony.
You joined the RBI at the worst of times and are leaving at the best of times. What lessons you have learnt from this assignment?
One should not sound pompous but the most important lesson is to keep your feet firmly on the ground.
The second lesson is that the consultative process is probably the best method. There are no hard and fast rules that work all the time.
So, you should have an open mind and take decisions after due consultation with others. And the third lesson, I would say is, don't go by the established fad of the day in terms of economic policy.
All the talk about fixed exchange rate, flexible exchange rate, appreciating exchange rate, capital account convertibility and so on are very good as principles. But when the chips are down the country has to make its own decisions.
In making these decisions the most important thing is to to keep the country's interest in view rather than what others are saying.
What's your unfinished agenda?
I always say that as long as there is money, the central bank's agenda will remain unfinished. We have started developing the markets.
A beginning has been made but there is some distance to go. The markets are not as developed and as diversified as we would like them to be in the long run.
Do you have any concerns?
From the monetary point of view, there is no immediate concern. The inflation rate has come down, the monsoon happens to be good and growth is expected to pick up.
But in the medium term, the development of our country and its better performance are the main challenges. But it is not confined to the RBI. It's a much wider issue.
Often you have spoken about the lack of efficiency in the public sector. You also spoke about isolated pockets of excellence in the private sector and said that they are not contributing to the overall progress of the country the way they should.
I have been making a more reflective point which is not about the public sector or private sector per se. The point I have been making is that we are seeing in our country a tremendous resurgence of confidence at the level of individuals and enterprises.
We need to transfer all these - what you may call the qualitative change of confidence in ourselves - to the public delivery system in terms of water, power, roadways and infrastructure.
You are the chairman of the appointments committee of public sector banks. Often the government overrules your recommendations and picks people for top posts, guided by political interests. Isn't that a governance issue?
You must always accept the fact that the appointments are made by the government and the appointment board is an advisory committee to the government.
There is always a process of dialogue (between the government and the board) and it is government's prerogative to send back the recommendations to the board for review and the board makes another recommendation or repeats its old recommendation.
I don't see this as the government imposing itself on the board. I would say that the appointments committee has functioned in the way it is expected to function in the sense that the appointments are ultimately the responsibility of the government of India and the board is an advisory board.
My comfort level with the government's decision is very high. Whenever the government has any reservations on any recommendation, it has always consulted the board.
Let's talk about the RBI's functions. You want to transfer the RBI's stake in the State Bank of India to the government, which will amount to the nationalisation of SBI. You are regulating NRI deposit rates and imposing restrictions on overseas borrowings by companies. Aren't they all retrograde steps? Aren't you reversing the reforms process?
No. The proposal of transferring the RBI's stake in SBI to the government is a technicality. What we are saying is that being the monetary authority the RBI should not hold stakes in any bank. It's a historical thing and we want to correct this.
Other issues that you have raised are policy decisions which are taken in response to certain situations as they exist at a particular point of time.
As I have told you, one has to take into account the ground realities while making policy decisions. This is not a reversal of the reforms process. We have liberalised a lot of things and we will continue to do that.
Why are savings bank deposits still regulated?
There are both sides to the argument. The RBI has so far felt that there should be one savings bank rate which is uniform across all banks.
Even when all other rates are free?
You must accept the fact that there are arguments on both sides on certain issues. When you say the growth rate should be higher, there is no argument.
But when you say interest rates should be higher or lower, there will be arguments on both sides.
Aren't savings bank deposit rates high at 3.5 per cent?
I can't make a comment on that. I leave this to my successor.
Part II: 'I would like to be remembered as me'
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