“One doesn’t plan one’s life fully. Some of it is planned, but some of it is purely accidental. Much of my life is a matter of circumstances,” writes former Reserve Bank of India (RBI) Governor C Rangarajan in his just published memoirs, Forks in the Road: My Days at RBI and Beyond (Penguin; Rs 699). As one flips through the book, it becomes obvious that Rangarajan’s life has been full of accidents that led him from the quant IIM-A (Indian Institute of Management, Ahmedabad) campus to the buzzing and buzzling RBI corridors in Delhi in 1981. A decade later, he got the opportunity to steer the country out of an unprecedented financial crisis, under the political stewardship of PV Narasimha Rao and Manmohan Singh. Such was the crisis in 1991 that India had to send 46 tonnes of gold outside its shores. The move, however, shook the nation out of its false sense of economic security, he says.
Rangarajan was the RBI Governor between 1992 and 1997, which without doubt was one of the most challenging periods in the economic history of independent India. He also served as chairman of the 12th Finance Commission, chairman of the Prime Minister’s Economic Advisory Council (PMEAC), member of the erstwhile Planning Commission, Governor of Andhra Pradesh, and member of the Rajya Sabha. This book tells Rangarajan’s — and by extension, India’s — story from 1982, when he left the IIM-A to join the RBI, and 2014, when he resigned as chairman of the PMEAC.
The following is an edited interview with the former RBI governor:
You dedicate this book to Dr Manmohan Singh, the father of economic reforms in India. Today, after his two-stints as Prime Minister of India, how do you see him and his legacy? And do you think history would be kinder to him, as he himself predicted towards the end of his stint as prime minister?
Dr Manmohan Singh as finance minister brought about fundamental changes in India’s approach to economic policy. The reforms he initiated broke new ground. As prime minister he ensured that we fully reaped the benefits of reforms. India’s best economic performances were between 2005-06 and 2010-11 when GDP grew by 8.8 per cent showing clearly what the potential growth rate of India was. This is the highest growth experience by India over a sustained period of five to six years. This is besides the fact that this period included the global crisis year of 2008-09. During this period, the investment rate reached the peak of 39.1 per cent of GDP in 2007-08. The current account deficit in the balance of payments remained low. It is true that India’s growth started declining after 2011-12. This is partly cyclical. Perhaps the downswing could have been better managed. But the fact still remains that his courage and vision opened up new opportunities for India. He will certainly go down in history as an outstanding prime minister.
You have also praised PV Narasimha Rao profusely. What makes you say that he was not a reluctant reformer?
Narasimha Rao was prime minister when the reforms were initiated. He provided political support and cover for the reforms. He was not a reluctant reformer because as prime minister he was also in charge of the industries ministry and the dismantling of the complex network of controls that permeated the production system was at his initiative. This is a key part of the reforms. Narasimha Rao was chairman of the Planning Commission. At that time, I was a member. The draft report of the Eighth Five-Year Plan which detailed the nature of the reforms and its implications was approved by him without any change. He was totally behind the philosophy and rationale of the reforms. He did not sound hawkish on the reforms because he had to carry with him the entire Congress party. That is why he presented the reforms as a continuation of the earlier policy than as a break. That is a matter of strategy in order to win the support of everyone in the party.
As you write in this book, you had an accidental entry into the RBI in 1982. Initially, you were unhappy, so much so that you actually thought of going back to the IIM-A. Can you please tell us more about that phase in your life?
I was unhappy initially because of the limited allocation of portfolios to me as Deputy Governor. However, the situation changed within six months. I got the portfolios I wanted and I was able to play my role in shaping the policies.
India approached the IMF four times between 1955-56 and 1980-81. How were these episodes different from 1991? And why do you think India could reap benefits in 1991, and not before?
India’s approach to the IMF during the period 1955-56 and 1980-81 was essentially to take care of difficult balance of payments situations. The support from the IMF had a limited impact because there were no fundamental changes. I have explained in the book why the 1966 devaluation did not have the desired effect because of the failure to provide adequate finances. In 1980-81, the programme with the IMF was ‘a success’, as the balance of payments problem was fully taken care of and we did not even utilise fully the assistance approved. In 1991, the programme with the IMF in several steps was followed by a series of reform measures that made the picture different. On earlier occasions, there was no willingness to change the basic strategy.
You write that India knocked the doors of the IMF late in 1990, and could have approached the global financial institution in August rather than December that year. Please explain.
In August 1990, the RBI wrote to the Ministry of Finance to approach the international financial institutions to get assistance to overcome the critical balance of payments situation. But the government did not take immediate action and in the meanwhile, there was a change of government at the Centre. Only after that in December, we decided to approach the IMF. But by that time, our foreign exchange reserve position had deteriorated sharply.
In the 1990s, as a RBI governor, you worked with Manmohan Singh and P Chidambaram. How different were their approaches as finance ministers? Please share your experiences.
In terms of political and economic philosophy, Manmohan Singh and P Chidambaram were on the same wave length. On the fundamental issue of opening up the domestic production system as well as the external sector, there were no differences between them. However, in terms of presentation of ideas, there were differences which flowed from their respective backgrounds — one had an academic background and the other a lawyer’s background.
You write in the last chapter of the book, “During the five decades, India’s annual growth rate was just 0.9 per cent. With the population growing at 0.83 per cent, per capita income remained almost flat.” By the 1970s it was obvious that this model was not working. What explains this pathetically slow growth? And why did we take so long to change, that also when we had a crisis and no other option but to reform?
The slow growth up to the end of 1970s was a consequence of many factors. In one sense, for almost three decades after Independence, there was a near consensus on the strategy of development implicit in our plans. The crisis of 1991 was so severe that it had shaken the confidence in our earlier strategy. In fact, the very leaders who had earlier supported the planning strategy with all its implications were unwilling to change direction. There was some movement away from the earlier strategy in the 1980s. But that was not comprehensive.
You mention a very interesting line towards the end of the book: “Growth requires more than reforms.” What do you mean by that?
What I mean is in the words of economists, reforms are necessary but not a sufficient condition of growth. Reforms provide stimulus to growth. As mentioned earlier, after having grown strongly, the growth rate started declining after 2011-12. And the investment rate began to drop. Investment is the driver of economic growth. Reforms do provide an appropriate investment climate. But more action is needed to raise the investment rate. Good governance as well as non-economic factors play a role here.
What will be your advice to the Government of India dealing with the post-pandemic and Ukraine crisis blues? Also, when do you think India can be a $5 trillion economy?
To become a $5 trillion economy in a five-year time-frame will require a real growth rate of 8-9 per cent. As mentioned earlier, the key driver of growth is investment. While public investment should also increase, the major focus has to be on private investment, both corporate and non-corporate. Currently, the gross fixed capital formation rate is 28 per cent of GDP. This investment rate must climb to 33 per cent of GDP to facilitate growing at 7 to 8 per cent. The primary focus therefore should be on accelerating the investment rate.
Finally, you had a super-busy time in building the country and its economy. Post-retirement, what keeps you busy these days?
When I left the chairmanship of the Economic Advisory Council to the Prime Minister, I was 82. Thus, I have had a long innings in India’s economic policymaking. Since then, I have been actively involved in various educational institutions such as Madras School of Economics, CR Rao Advanced Institute of Mathematics, Statistics and Computer Science and the ICFAI Foundation for Higher Education. I keep writing. I have written almost an article a month in journals and newspapers. I also completed the book about which we are discussing today. I will keep going as long as I am mentally alert.
