‘The prime minister’s comment on ‘revdi culture’ was welcome. But I am disappointed he did not follow up on that.’
‘All political parties, including the BJP, have been guilty of this.’
‘Now, Modi’s guarantees, the Congress’s ‘nyay‘ path and both ruling and Opposition parties are vying with each other for freebies in my home state Andhra Pradesh.’
IMAGE: Beneficiaries queue to collect their free ration kits. Photograph: ANI Photo
Former Reserve Bank of India governor and former finance secretary Duvvuri Subbarao recently wrote his memoirs Just a Mercenary? Notes from My Life and Career.
He was candid in his new book that the answer to the question — ‘Was I a mercenary or was I more?’ — will perhaps elude him forever.
However, when it came to interaction with Business Standard journalists, the former member of the Indian Administrative Service was anything but evasive.
He gave his forthright views about fiscal concerns, freebies, farm loan waivers, the 2G scam and inflation targeting.
Your book said Union Finance Minister Nirmala Sitharaman adopted fiscal expansionary policies in the Budget for 2021-2022.
You argued this kind of policies might work in a downturn in an advanced world but not in emerging market economies such as India.
Why do you think so?
I said this in the context of the eurozone sovereign debt crisis, which came shortly after the global financial crisis.
As far as the finance minister is concerned, she went for relaxed fiscal consolidation and provided a longer timeframe — a fiscal deficit at 4.5 per cent in 2025-2026.
But to her credit, she has been delivering on that.
But does the high level of sovereign debt worry you?
Yes, it does. I think the current level of debt of the central and state governments together is high.
It went up as high as 90 per cent during Covid, and has come down a little bit now.
But the FRBM (Fiscal Responsibility and Budgetary Management) committee said an acceptable and affordable debt-GDP ratio for India was 60 per cent — 40 per cent for the Centre and 20 per cent for the states.
Some people argue we should not be fixated on 60 per cent. I agree with that.
You said emerging market economies such as India should not be nonchalant about rating agencies’ grades.
However, the finance ministry recently came up with a report that found fault with these agencies’ methodology for rating emerging market economies.
You can always challenge credit rating agencies. You can ask them to review their assessment based on objective data.
But ultimately, you cannot pressure them beyond a point.
They give a rating, which matters. There is no country in the world, not even the United States or China, which can say that “we are indifferent to the ratings by these agencies”.
Ratings matter, especially for emerging market economies.
Coming to the present times, do you think the RBI is overly cautious when it proposes 5 per cent provisioning for infrastructure projects, a suggestion which has not gone down well with the markets?
It is quite possible that individual institutions might agitate because they are looking at their profitability, at their balance sheets, but the RBI is looking at the larger economy.
The RBI collectively may be looking at the larger picture, which is the cost worth paying to avert future problems.
The non-performing assets we saw for a decade were also a consequence of some inappropriate standards.
As we all know, one of the key factors that contributed to the rise of the National Democratic Alliance government was the movement against corruption.
In your book you cite an instance of your explaining the rationale of 2G licensing policies.
Given that, do you think senior bureaucrats in key ministries are really worried that if they take some decisions which lead to revenue loss, they may be prosecuted later by the Central Bureau of Investigation or the Enforcement Directorate?
I cannot really comment on the concerns and anxieties of the current bureaucracy. But I can relate to them.
I was in the IAS for 35 years. Increasingly, civil servants feel if they take a decision which they believe is in the best public interest, it might come to catch up with them after they have moved on.
On the other hand, there is no penalty for not doing anything negative.
So why don’t I play safe, which is a basic human tendency, not just IAS officers’.
But that is not in the best interest of the country.
IMAGE: Dr D Subbarao, right, with Dr Raghuram Rajan, his successor as RBI governor. Photograph: The Late Danish Siddiqui/Reuters
You have written about the presumptive loss that the Comptroller and Auditor General (CAG) calculated on 2G spectrum.
Do you think political history would have been very different had the CAG not stuck to that presumptive loss?
Counterfactuals are always difficult in real life. First the Commonwealth issue came, followed by the coal scam and then the Supreme Court stopped mining in Goa.
So, I would conjecture that probably the political developments would have been different.
You mentioned freebies and Prime Minister Narendra Modi’s remark about ‘revdi culture’.
There is a thin demarcation line between freebies and social welfare measures.
How will you categorise, say, the Centre’s free foodgrain scheme and the Delhi government’s mohalla clinic or measures to improve government schools in either of the two categories?
I thought the prime minister’s comment on ‘revdi culture’ was welcome. But I am disappointed the prime minister did not follow up on that.
And all political parties, including the Bharatiya Janata Party, have been guilty of this, some more than the others.
The BJP went for a farm loan waiver in Uttar Pradesh in 2017. Now, Modi’s guarantees, the Congress’s ‘nyay‘ path and both ruling and Opposition parties are vying with each other for freebies in my home state Andhra Pradesh.
Nobody’s asking the question where the money for this is going to come from. So I am uncomfortable with this. There is very little public awareness whether this is all sustainable.
You talked about demerits of farm loans in your book.
But you also quoted a study by the National Bank for Agricultural and Rural Development, saying that only four of 21 political parties that announced farm loan waivers lost elections since 1987 when the Devi Lal government in Haryana did so.
In that context, why will any political party refrain from announcing a loan waiver?
You must have read the Logic of Collective Action: Public Goods and the Theory of Groups by Mancur Olson.
We always think that farm loan waivers are a problem between the government and the farmers and it does not affect us.
But it does affect me even if I am living down south in Andhra Pradesh or in Kerala, or in Manipur.
Farmers have an interest group and can get together. But the larger public which is affected is not organised. Organising that larger public is a big task, it never happens.
What is your thought on inflation targeting, particularly on two issues — does it make communication easier and does it take away pressure from the government itself?
I had reservations on inflation targeting. But those reservations had slowly dissolved for a number of reasons.
My biggest reservation against inflation targeting was that our inflation is triggered by supply shocks.
In that situation, monetary policy is not the most effective instrument.
So, even if you have an inflation target, the central bank may not bring down inflation through the best of its monetary policy.
It will affect the credibility of the central bank.
But over time, we figured that inflation is becoming more supply shock-resistant and therefore increasingly monetary policy will be a more effective instrument.
Feature Presentation: Aslam Hunani/Rediff.com
