When the outgoing governor of the Reserve Bank of India sat down to write his Nani Palkhivala memorial lecture, he may have noticed that one of his predecessors was his bÍte noire, the honourable finance minister. The latter could not, of course, have known that the former would follow him in the lecture series and would therefore have an opportunity to take a potshot at him. But as P. Chidambaram noted, he was the target of many an attack, political, journalistic or amateur. It did not, however, enter his mind that the attacks may relate to issues, and that some of them might have merit.
For instance, he said in that lecture that Indian society remains unequal because some people oppose reservations for women, scheduled castes, and other backward classes. It may be pointed out in response that the persistent inequality cannot be due to the opposition it faces, for it was overridden over half a century ago and the government has implemented discrimination in favour of its favourite classes for two generations. That would suggest that it is the governmentís inefficiency that is behind the perceived inequality, rather than the unhappiness of the vanquished upper castes and classes. He justified subsidies on food and fuel on the grounds that the poor would starve and be unable to travel without them. It did not occur to him, however, that even an altruistic government like his would be more effective if it were accountable, and if it were to get impartial, objective answers to questions as to whether the crores it purports to spend on subsidizing its favourite poor end up in the pockets of the finance ministerís party members and their business partners.
Duvvuri Subbarao may or may not have had Mr Chidambaramís lecture in mind when he wrote his; but it not only embodies an answer to the finance ministerís self-serving arguments, but also reflects the frustrations of having to live and work with him for a long five years. He asserted that an apolitical central bank had to act as a counterpoise to a government driven by the rituals of democracy. But he was also painfully aware that in a crisis, the government and the central bank were likely to be more effective if they acted together. That they have not done so in our context is obvious. The frequent financial enquiry committees are one indicator. Another indicator is the financial stability and development council, which is clearly a super-regulator under the control of the Central government. India has many more financial regulators than more normal countries. Their multiplicity has something to do with the politiciansí desire to reward their protťgťs with pay, house and office; but it also serves the purpose of diluting the RBIís authority and diffusing it amongst more obedient institutions. India needs to rethink financial regulation, which must include control on the Central government.