‘A long way to go in demystifying Budget’
Not only the govt but even regulators must communicate at a level people understand, says former RBI Governor Subbarao
Former RBI Governor Duvvurri Subbarao’s new book titled Just a Mercenary? o ers a glimpse into his career and delves deep on conflicts and policy challenges he navigated through during his stint at the Finance Ministry and later at RBI. Subbarao, RBI Governor from 2008-2013, who had earned a moniker ‘Baby Step Subbarao’ from analysts for his cautious monetary policy stance, chronicles his nearly four-decade career in this second book (first one, titled Who Moved My Interest Rates?, came out in 2016) published by Penguin.
Excerpts from interview:
You have in the book argued the need to demystify Budget for the common man’s understanding. Where are we on this?
Thank you for asking this question. Accountability is the core of our democracy, so that’s why I believe demystification and dissemination is very important, particularly important in a lower awareness society like ours …Low literacy level society like ours.
You know, when I was Finance Secretary or RBI Governor I was supplying information. I was not a consumer of information so much. But now over the last 10 years as a private citizen in the country, I’ve consumed information given by the Reserve Bank and by the Finance Ministry. And I now appreciate the gaps in communication. What do people want?
Government is run by politicians and politicians, by definition, show a positive picture of what’s happening and try to suppress the negative. They try to show that the economy is growing at 7.5 per cent although some economists are saying that the underlying growth is only 6.5 per cent right. So there is some... not fudging data. I’m not saying that. But I’m saying that they’re projecting the positives and trying to suppress the negatives. That’s okay as that’s not unique to our country. That happens in every country in any government. But what I meant by demystification is that there is a need for the government and indeed for all public institutions such as Reserve Bank of India, SEBI or other regulators, other public institutions, to communicate with people at the level they understand.
So you feel there is some distance to go on the Budget demystification front even after a decade since you demitted oce as RBI Governor?
Absolutely, there is long distance to go. My demitting o«ce is not a watermark in the financial history of the country. What I’m saying is that we have a long way to go in demystification of the Budget — both at the Central and State levels.
Another issue in the book that has generated a lot of debate is about 2G scam. What is the main point on CAG audit that you have made?
Well, the message I want to give on 2G is that audit serves a very useful function. It is necessary in a democracy, an independent auditor, Constitution backed independent government auditor, but the auditor must respect the boundary lines.
My point is the locus standi of the Comptroller and Auditor General (CAG) to take up a special audit is unquestionable. However, the CAG’s decision to go into the question of ‘presumptive loss’ to the government and its methodology of quantifying that loss are questionable on several grounds.
The CAG’s methodology makes some assumptions which I believe are contestable. I have written about them, but that is okay. That is par for the course. You can debate them. More important than the estimate of presumptive loss, questionable as it was, was the CAG’s locus standi in questioning the right of the government to decide to sell spectrum at below market price.
But if the CAG is allowed to question presumptive loss, as you said, and as I’ve said in my book, then CAG will logically be in a position to question every tax concession in the Budget, saying that it is a presumptive loss. For example, the government cut corporate tax to 22 per cent in certain cases. By this count, the CAG can argue tomorrow that corporate tax rate cut is in some sense a presumptive loss and should be taken up for CAG audit.
You had a significant para in your book that there is little understanding and sensitivity within the government on the importance of central bank autonomy. Could you elaborate?
Before I answer your question, I want to say that I am talking about RBI and Government not in any particular context. You know, people have misinterpreted this as if it is in one particular political context. That’s not the case. I’m talking institutional. You know, there is government, there is the central bank and within the government, no matter who the finance minister is, and within the RBI, no matter who the governor is and no matter what the political situation is. Governments tend to look upon RBI as part of the larger public institutional framework. And they cannot reckon with the arm’s length relationship.
And if you look at it, there is the government, there are the regulators, there are the markets and there’s the larger public. They are four di erent segments. Governments tend to internalise regulators — financial sector regulators as part of the government system. And say that together we will evolve the public policy, because all of us have similar goals — without realising that the central bank or regulators, acting independently actually helps improve policy outcomes.
So that’s the point I was trying to make. So I want to once again say that I’m not talking about one particular political context. It is institutionally structured that way.
What more can be done to ensure that central bank autonomy isn’t compromised on any count by the government of the day?
I think it’ll come with experience and maturity, I don’t think it’s some institutional structure that can engineer this. I’ll give you an example. In the US, President Trump said lots of things about the Federal Reserve. He said the Fed has gone crazy….They’re boneheads…They don’t know what they’re doing. The number one enemy is not China. #1 Enemy is the Federal Reserve.
Our finance ministers and our prime ministers don’t say that. In fact if they say that the markets will collapse. In the US, even though Trump had said all that, the markets just brushed them o , because institutions there are mature. We must recognise that our institutions are not yet mature. So if the finance minister says the RBI has gone crazy, then the markets would collapse. The finance minister cannot a ord to say that in India.
We must get to a stage where the markets will understand that there are di erences. But the central bank is independent, is not going to be influenced by these outbursts. If you get to that stage, the RBI will be independent and that has to come with maturity of institutions, not by some institutional arrangements.
BOOK