The Finance Minister had called him the previous night. ‘Remember, Harsha, we have to bring down the interest rates. RBI needs to help the government,’ he cautioned.
‘I cannot commit to anything, sir,’ Harsha responded.
‘Do you remember our conversation that night when we had met with Khosla? We had discussed it that day and you had agreed,’ Pande reminded him.
‘With due respect, sir, I had not agreed. I had only said that I would consider it,’ Harsha argued. But the his response hadn’t gone down well with the FM, who had blown his top. This was not the first time the FM had reacted the way he did and it would not be the last. But Harsha knew that he was nearing the end of his tenure as RBI chief and the government could make make his last days miserable, turning him into the fall guy for their failed economic policies. The risk he was taking and the repercussion it could have on his reputation worried him.
Ever since Independence, the autonomy of the RBI had been a contentious issue. What was the amount of influence the government would, rather ‘should’, wield on the RBI was often a topic of heated debate in the corridors of North Block. At the heart of this conflict were the interest rates prevalent in the economy.
A higher interest rate controls inflation, whereas a lower one fuels it. The Reserve Bank of India controls inflation using one tool – the repo rate. Very simply put, the repo rate, which the RBI decides, is the interest rate at which banks borrow money from the RBI. The RBI announces its stance on the economy and supports it directionally by announcing the repo rate in the monetary policy, which is released bi-monthly. Whenever the RBI lowers or increases the repo rate as a part of its monetary policy, the banks follow suit.
When RBI raises the repo rates, the banks end up paying higher interest to the RBI on the monies they borrow. As a consequence, to make up for that, they charge more from the customers they loan money to, thereby making loans costly. Costlier loans dissuade consumers from taking then. Even companies avoid taking high-interest loans from banks and reduce their borrowings. This reduces the consumer’s ability to spend. For companies, reduction in borrowing leads to lesser availability of money, lesser investment and consequently, a drop in production. The combined effect of all this is that the economic growth rate slows down and consequently reduces inflation.
In simple terms, high interest rates lead to reduced inflation, but also slow economic growth. Low interest rates lead to growth in the economy, but also inflation. Growth and controlling inflation are often seen as two deliverables at diametrically opposite ends of the same line.
That was where Harsha Ranjan’s conflict with the government lay. The Finance Minister wanted a higher economic growth rate and had asked Harsha to support the government’s cause by lowering the interest rates. Harsha was reluctant to do so because falling interest rates would have made money cheaper, loans easier and hence, fuelled consumption. And increased consumption would fuel inflationary growth. The rising prices would make life difficult for the poor. Therefore, he was not in favour of dropping interest rates. And it wasn’t like the RBI was an outlier. Central banks the world over are paranoid about inflation and don’t drive the interest rates down just to cater to the whims of the central government. Most of them strongly feel that driving growth in an economy is the government’s agenda and deliverable, not theirs.
Given his stance, Harsha’s new monetary policy was on expected lines. Much against public sentiment and government persuasion, the interest rates were not lowered by the RBI. To add to the government woes, the RBI also brough out an official statement saying that the economy was overheated and it expected inflation to rise. Hence, as a conservative monetary policy measure, it would not reduce the interest rates.
In Delhi, the Prime Minister was furious and called the FM for a meeting.
‘What is the problem with the Governor, Pande?’ the PM asked. ‘Does he not understand that inflation is not a concern? It’s economic growth that needs to be driven. If the country doesn’t see 7 per cent growth, we will be roasted. The opposition will not leave an Opportunity to shame us. Interest rates are critical. We need them to come down. We need people to pay less for their loans. That’s the only way they can get more money in their hands. We had comitted to doing all this when we came to power. People believed us and voted for us. We need to come good on the promises we made.’ The PM was getting worked up, his voice rising.
‘I know, sir,’ Siddharth Pande agreed. ‘This is exactly what we wanted to do. The Deputy Governors were on board. Harsha Ranjan had also been sounded off. But at the last minute, he didn’t toe our line.’
The Prime Minister was silent, his face twisted with worry. Finally, he looked at the FM and said, ‘This guy can screw us. He has one more monetary policy to go before he retires. We need him to support us or we will be in a bit of a soup. Our support will dwindle.’
‘Yes sir.’ The minister nodded.
‘Harsha Ranjan is otherwise an intelligent man. He wouldn’t do something stupid. I wonder why he is failing to see the government’s point of view,’ the PM said, standing up and pacing up and down the room anxiously. ‘I hope he isn’t trying to get back at you for anything that you did?’
‘I think all he wants is to leave behind a legacy … the legacy of being independent. And that can only happen if he visibly goes against our will.’
‘Leaving a legacy is not as important as creating history. And we are creating history here. We cannot allow him to derail our vision. His actions can drive our fate. Our country’s progress depends on him. If he fucks up, we will be screwed.’
‘I understand, sir,’ Pande asserted. ‘In any case, he has only four months to go.’
‘Thankfully.’ The PM sighed and turned to pick up his cup of tea from his freshly polished teakwood table. ‘Do you have names of prospective people to replace Harsha?’
‘Yes, sir. I do.’ Siddharth Pande had worked long enough with the PM to pre-empt his questions. He had come prepared.
‘Let’s hear them, then,’ the PM said, taking a long sip from his cup.
‘The CMD of Bank of Baroda is due for a move. His term comes to an end soon,’ the FM began.
No. He’s too new to all this. And he is from the private sector.’
‘The SEBI Chairman, Mr Sharma?’
‘No, don’t touch him. He’s our guy and we moved him there only last year.’
‘IRDA chairman, Srinivasan?’
The PM thought for a while and shook his head. ‘No,’ he said. ‘He is too close to retirement. I want someone younger.’
That was the end the Pande’s list. ‘I will come back with more names,’ he said and picked up his papers.
‘Look, my friend,’ the PM began. ‘I don’t need to tell you that the next two years are crucial for us. We need someone in the RBI who will work with us and support us to the core. Someone who does not have any political leanings. Someone who can be moulded. Someone who is willing to be led. And, most importantly, we need someone who needs the job rather than someone we need for the job. And that someone has to be from outside the country. That is the only way we can get a learned man to step in and deliver the nation’s agenda.’ The Prime Minister walked towards the door to his office and stepped outside. He looked around and spotted the man waiting in the plush reception room. The man had been waiting since 9.30 a.m. for a meeting scheduled for 10.30 a.m.
‘Mr Kesavan,’ the PM called out as he walked towards the man, extending his right hand. ‘Glad you came. Care to join us inside? I want you to meet Siddharth Pande, our Finance Minister.’
11
April 2015
MUMBAI
That year, the inaugural match of the Indian Premier League was between the defending champions, the Mumbai Bulls and the Kolkata Chargers. Mumbai’s Wankhede Stadium was packed to capacity. Thirty thousand people had gathered for what promised to be a glitzy extravaganza. The owners of all eight teams participating that year were present for the opening cer
emony. Bollywood’s superstars were going to perform that evening. The IPL had clearly become one of the most valuable sporting properties in the history of the game.
The team owners sat in the VIP stand along with a few select guests, including Vicky Malhotra. He was waiting for Pallavi’s performance to begin. She was performing with the reigning king of Bollywood, Shah Rukh Khan. The moment the two of them appeared onstage, the stadium began ringing with applause, hoots and whistles. People were going mad for the two celebrities. SRK was already the heartthrob of the nation and Pallavi Soni too had become incredibly popular all over again, thanks to her success in the reality show.
‘Kya cheez hai yaar yeh!’ the man in front of Vicky said to his companion, going on to make more crude comments about Pallavi’s body. He clearly had no idea that Vicky was in the stands behind him.
While normally something like this would incite outrage, Vicky Malhotra didn’t feel bad at all. On the contrary, he felt happy and proud. Pallavi was with him. She was his prize; his trophy.
After the performance, the match began, and Pallavi joined him in the stands. Both of them got engrossed in the match and didn’t notice that the other guests around them were beginning to stare and whisper amongst each other. Those who hadn’t recognize Vicky before suddenly realized who he was, and the two run now kicked themselves for the manner in which they had talked about Pallavi.
During the break between the two innings, the one who had made the vulgar comment about Pallavi, who owned one of the teams, walked up to them and introduced himself. After the initial pleasantries, he said, ‘It would be indeed a pleasure for us if Pallavi-ji were to endorse our team. We would love to sign up your wife as an ambassador for Telengana Tigers. Who is your agent? If you could connect us with them, we would be happy to have our marketing team talk to them.’
Vicky Malhotra looked at the man and smiled. The businessman in him was fully awake. ‘Ambassador?’ he asked. ‘Why only an ambassador? Why not a co-owner?’
The man was stunned. Vicky had caught him off guard, albeit for a moment. But within seconds, his expression changed – the shock wore off and he gave them a big smile, extending his hand towards Vicky.
Three days later, the headline on the front page of the Times of India read – ‘NYU academician Aditya Kesavan top runner to be the next Governor of RBI.’
In another corner of the paper was a small snippet – ‘NRI Vicky Malhotra buys 12 per cent stake in Telengana Tigers for an undisclosed sum.’
12
April 2015
DELHI
By the time the news about him hit the newspapers, Aditya Kesavan was back in New York. He had to seek permission from his university for a break from his teaching assignment. It was granted easily. After all, not many members of the faculty got a chance to take up the role of the head of a central bank.
Aditya was scared. While he was an academician with solid fundamentals, this job and its responsibilities were entirely new to him. However, along with other benefits, it also presented him the opportunity to prove a point to his wife – that she had made a mistake by leaving him. Like so many other people, Aditya was finding it hard to forget his ex and move on.
But more than anything else, the job meant that he would be back in India and closer to his parents. He felt a pang as he realized that his mother’s dementia meant that she wouldn’t be able to feel the joy of seeing him succeed.
Despite all his reservations, though, Aditya knew that his appointment as the RBI Governor ticked all the boxes for him. Little did he know that he was not the only one for whom his appointment ticked all the boxes.
₹
‘You wanted to see me?’ the white kurta-pyjama-clad Finance Minister said as he entered the Prime Minister’s chamber in the Rajya Sabha. The PM had been perusing some documents, but he now put them away, looked up at Pande and nodded. He took off his gold-rimed spectacles and placed them on the leather-topped teakwood table.
‘This Governor,’ he said, and then silently pulled a copy of the day’s Economic Times that was lying on the table towards himself. Harsha Ranjan’s face stared back at him from the front page. The article, an interview with him, carried the headline: ‘I would have been happy to serve for a second term had I been asked to.’
‘I know, sir.’ The FM nodded. ‘He has been making noises about his second term. Especially after the media caught on to the leak about Aditya Kesavan. But this is the first time he has given a formal interview on this.’
‘My worry is not the interview. It’s the posturing. What impression does this leave on the public at large? Whatever we might think of Harsha, the fact is that he is a competent man, even if he is a bit of a loose canon. He has managed to keep inflation and prices under check during his term, though he doesn’t share our aspiration of high growth. He doesn’t understand that the world needs to see India as a hyper-growth economy. And letting inflation inch up a bit is not a big price to pay for that. But this Harsha, he doesn’t listen to anyone. That is what irritates me. I am not asking him to do something for my personal gain. I want the country to gain. I want our people to prosper.’ The PM’s voice rose as he got worked up.
‘Don’t we all want that, sir?’ Pande said soothingly. ‘Harsha is anyway on his way out. Let him have his moment of glory.’
‘I am still concerned, Pande,’ the PM replied, frowning. ‘There is one monetary policy to go before his term ends. If he pulls anything then…’ ’
‘I don’t think he will do that, sir,’ the FM said reassuringly.
‘What makes you so sure? If he is peeved that we did not offer him a chance to serve a second term, he could very well do something dramatic to spite us.’ With that, the PM stood up and walked in front of his table. ‘We need to clip his wings,’ he said, placing a hand on the FM’s shoulder. ‘Subtly.’
‘How do we do that, sir?’
‘Let’s take away his ability to unilaterally tinker with the interest rates.’
Seeing the blank look on Pande’s face, the PM continued, ‘Let us set up a Monetary Policy Committee.’
The Finance Minister was intrigued. He waited for the PM to go on.
‘A Monetary Policy Committee, which will function under the Governor of the Reserve Bank and will take all decisions on interest rates.’
The frown on the Finance Minister’s face disappeared. He was beginning to understand the game the Prime Minister was playing. ‘You want to take that authority away from the RBI Governor? We cannot. The Constitution prohibits it.’
‘Well…’ the Prime Minister explained. ‘We are not taking anything away from the RBI Governor. We’re just making it a collective responsibility of the panel, the MPC. For all these years, the RBI Governor alone decided the interest rates. Let us give him a few more people, our people, who will help him. Even the smartest of guys needs support. Eagles also need a push to leave the nest, don’t they?’
The FM’s smile grew wide. The Prime Minster was a genius! A belligerent RBI Governor could be brought to his knees by the MPC. On the face of it, the committee would be in place to provide guidance to the RBI Governor on policy decisions. And while these suggestions would not be binding on the Governor, he’d find it extremely difficult to overrule the MPC. His wings would be completely clipped. It was the perfect solution.
Then his smile faded. ‘But to do this, you’ll need to amend the RBI Act of 1934. Getting that through Parliament will be a nightmare. And this is not something we can just push through with an ordinance.’ It wasn’t going to be that easy.
‘Well,’ the PM said, his voice calm, almost casual. ‘Not if the RBI voluntarily agrees. Let’s assume that the RBI Governor signs off a document agreeing to the MPC. That would seem like a partnership between the Finance Ministry and the RBI, and there will be no need to go through the amendment process.’ He picked up a copy of the Economic Times again. ‘But that’s what it comes down to. Harsha has to agree. He has to sign up for it.’
‘And why on earth would he do that?’ Pande queried.
‘Well, why wouldn’t he?’ argued the Prime Minister. ‘After all, it’s not a bad deal, becoming a Governor post your tenure at the helm of the Reserve Bank of India. Walking into the sunset of your life becomes more romantic if you can have the pleasures and comforts that come with a cushy posting.’
Pande smiled. This was indeed a masterstroke. ‘And if the Governor designate helpfully agrees to continue this “tradition”, it will then become a practice.’
‘Correct.’ The PM nodded. ‘And over time, practice becomes law, doesn’t it?’
‘Absolutely,’ Pande agreed, his smile back in full force.
‘You know, we can really swing this. Talk to Harsha. He comes from Tamil Nadu. Currently, the Governor of Maharashtra doubles as the Governor of Tamil Nadu as well. If Harsha agrees, we will make him the the Tamil Nadu Governor post his RBI stint. That should make him happy.’
₹
It didn’t take the government more than a week to set up the MPC. It was made up of six members – the RBI Governor, the Deputy Governor in charge of monetary policy, the Executive Director of the RBI, and three nominees of the Government of India – all of them academicians and economists of repute. Initially, the move created an uproar. There were protests against what was seen as the government trying to impose its will on the RBI. But they petered out after an official statement by the government explained the committee as a measure taken to make the process of arriving at the interest rates more scientific. The media gobbled up the explanation and soon, the brickbats turned into praise.
Don't Tell the Governor Page 3