Watch | 'RBI Was Prepared for Default in 1990, Even Considered Selling Properties Abroad'

C. Rangarajan, who was deputy governor of the RBI in August 1990, says as a result of the National Front government's failure to act, there was “a fast deterioration” in the country's economic situation.

C. Rangarajan who, in 1990 was the deputy governor of the Reserve Bank of India (RBI), has confirmed that by December of that year, as the economic crisis steadily got worse, the central bank was “prepared for a default … (but) we thought of eventualities here, there and everywhere and wanted to avert this”. He reveals that at the time, the RBI even considered selling properties owned by the government abroad and one that was specifically considered was the Embassy in Tokyo.

In an interview with Karan Thapar for The Wire to discuss anecdotes and details revealed in his book Forks in the Road: My Days at RBI and Beyond, which was released on Monday, November 7, Rangarajan, who went on to serve as governor of the RBI and later as governor of Andhra Pradesh, revealed that in August of 1990, roughly four months before India approached the International Monetary Fund (IMF), the RBI, then under governor Malhotra, formally wrote to the National Front government headed by V.P. Singh, which was in power in Delhi, to recommend it approach international institutions such as the IMF. Rangarajan says the government failed to act and calls this “a failure of political leadership”. He says the government was “reluctant to act either because it had not recognised the seriousness of the situation or because it was ideologically averse to go to IMF.”

Rangarajan points out that as a result of the National Front government failing to act, there was “a fast deterioration” in the situation. He says “the reserves … were just equivalent to three weeks’ imports”. He adds “the position … was so acute that there was some talk of selling properties owned by the government abroad”.

However, although asked three separate questions on whether he would accept this failure to act and thus allow the economic crisis to get worse was irresponsibility on the part of the then finance minister Madhu Dandavate and then prime minister V.P. Singh, Rangarajan repeatedly refused to answer.

Rangarajan also made an important revelation about the devaluation that happened in 1991 by when Narasimha Rao had become prime minister and Manmohan Singh was finance minister. This devaluation happened in two instalments. Rangarajan made an important revelation about what happened at the time of the second instalment.

There’s need here for a little background. For a while now, there has been anecdotal speculation that Narasimha Rao got cold feet after the adverse political response that followed the first instalment of devaluation. He asked Manmohan Singh to postpone or cancel the second. This is the point at which Rangarajan’s account of what happened becomes important.

He reveals that on the morning of the second instalment (July 3, 1991) he received a call from Manmohan Singh at 9.30 am. He asked him how the situation was and he simply replied, “I have jumped.” Singh responded with “fine” and the conversation ended.

Explaining his answer, Rangarajan told The Wire that the code the RBI had adopted for the two-stage devaluation was ‘hop, skip and jump’. Therefore, the answer “I have jumped” meant that the second stage had been announced and completed and it was now too late to cancel it.

In the interview, Rangarajan also talks about the negotiations with the IMF, which he was a part of, which happened as the Chandra Shekhar government in Delhi was collapsing. He also talks about the quantity of 46.91 tonnes of gold pledged by the RBI to raise a loan of $405 million. He points out that it would not be a big sum today but at the time “that amount was crucial … to prevent a default”.

He also talks about episodes and stories from his days as governor of Andhra Pradesh. During that time he also served as governor of Orissa, Tamil Nadu and Kerala.

He recounts how Giridhar Gamang, then chief minister of Orissa, was very conscious of astrology and numerology and would only call on him at auspicious times. “I shall call you at 11.13 am,” Gamang told Rangarajan.

He also recounts how he had to persuade Jayalalithaa to step down as chief minister of Tamil Nadu when the Supreme Court ruled that her appointment was invalid because she had been convicted in an earlier corruption case. He recounts how he persuaded her to hastily appoint a replacement and how he swore in the cabinet late at night on the same day whilst they were all in tears because they had lost Jayalalithaa as chief minister.

In the interview, three present-day controversies regarding governors which are the subject of public debate are discussed. First, because ministers serve at the governor’s pleasure, can the governor withdraw his pleasure without the advice of the chief minister? Although Rangarajan made it clear he was not referring specifically to the Arif Mohammad Khan case, he nonetheless said: “My perception of the role of the governor in the constitution is that it does not envisage two centres of power … the governor acts on the advice of the chief minister” adding that in his view “it is not within the discretionary powers of the governor to dismiss a minister”.

Second, speaking about occasions when a governor and a chief minister disagree – and again refusing to connect what he said with Jagdeep Dhankar and his behaviour as governor of Bengal – Rangarajan said: “If the governor disagrees with what the chief minister is doing, he or she can discuss it with the chief minister or even write about it in their letter to the President. Beyond that, he or she cannot make a public display of disagreement.”

Third, Rangarajan said we need a constitutional amendment indicating “the reasonable amount of time” a governor can take to act on legislation. He said a governor must not delay giving his assent indefinitely.

Finally, Rangarajan’s advice to governors is crystal clear: “Governors have to understand not only the powers they have but also their limitations.” Whilst he accepted that it was human nature for governors who have previously been active politicians to want to continue to exercise power – as he put it “the itch to act is evident sometimes” – he added, “This is what they must learn to control.”