Former FMs Chidambaram, Mukherjee pressurised ex-RBI chief Subbarao on cutting rates

Subbarao’s Republic Exclusive: The former Reserve Bank of India (RBI) Governor, Duvvuri Subbarao, opened up about his relationship with the United Progressive Alliance (UPA) government during his tenure from 2008-2013. In an exclusive conversation with Republic Business he said that his relationship with the UPA was marked with unease rather than outright discord, Subbarao highlighted the mutual respect shared with Finance Ministers Chidambaram and Pranab Mukherjee. “I wouldn't say it was an impaired relationship, but it certainly was an uneasy relationship. However, because of the difficult economic situation at the time when inflation remained stubborn, I had to fight inflation by keeping interest rates high,” Subbarao said. 

The backdrop of their interactions was the challenging economic landscape the country was in, characterised by persistent inflation and sluggish growth. Amid these pressures, tensions arose over balancing combating inflation with high interest rates and addressing the government's concerns about stimulating growth, particularly amid high fiscal deficits.

“At the same time, the government was having problems on the growth front part because of fiscal deficits and all that but because of several other factors growth was not going up as they wanted to. So, there was the tension of managing the balance between growth and inflation. And that tension we had to manage and those differences came up in my interaction with finance ministers Chidambaram and Pranab Mukherjee,” he opined. 

Subbarao acknowledged the government's push to prioritise growth alongside inflation control, citing their insistence that the RBI be more attuned to growth concerns. However, he emphasised the central bank's unwavering commitment to its mandate of price stability, even if it meant diverging from the government's stance.

According to Subbarao, they put pressure on him to heed the advice of cutting interest rates, be more considerate towards growth rather than inflation, and that the RBI should be supporting concerns of growth as well. But as governor of RBI, an institution that is enjoined to deliver on price stability, he could not accommodate the government's point of view, that was the cause for his difference with Chidambaram and Mukherjee.

Despite the disagreements, Subbarao expressed a sense of respect and understanding for the differing viewpoints that characterised his tenure as RBI Governor.