As Shaktikanta Das’s term as RBI governor nears its end it’s being speculated if he will be given another extension. It’s been completely forgotten now but there was a time when RBI governors enjoyed very long tenures, certainly more than the three plus two that they now get. Or even just a straight five.
Many countries in the developed world have their central bank heads staying on for longer than five years. Alan Greenspan stayed for almost two decades. The Bank of England governor and his German counterpart get eight. The French governor gets six. And so on.
Of the first four Indian governors, three stayed for six years or more. The one who didn’t was the first governor who was ‘persuaded’ to leave after just 20 months in 1937 because he kept telling the government to take a walk. No, the government told him, you go instead. He went on long leave to England and never returned.
Before joining the RBI in 1935 he had been the managing director of the Imperial Bank of India. So the government decided to send a bureaucrat, thus starting an abiding tradition.
His successor was an ICS man called John Taylor. He was sent from the finance ministry for exactly the same reason as all other governors have been appointed: to ‘appreciate’ the government’s point of view and ensure that differences of opinion were sorted out quietly. Or as Montague Norman said be a “Hindoo wife”.
Quarrel quietly
This tradition held for two decades until in 1958 finance minister TT Krishnamachari made life impossible for the then governor, Benegal Rama Rau. Like the first governor he, too, resigned.
Taylor was only 46 when he was sent as governor. He died suddenly in 1943 in England just after he had been reappointed for five more years. Had he remained alive he would have had a 10-year term. His boss in Delhi wrote of him “he showed utmost loyalty to me...”. That became the yardstick.
In his place was appointed CD Deshmukh, deputy governor and an ICS man. (By the way, he lived in 1, Safdarjung Road for a while in 1950, the house allotted to Indira Gandhi in 1964 and now her shrine.) He served as governor for seven years till 1950 when he became finance minister, a post he had declined in 1946 in the Interim Government, thus allowing Liaquat Ali Khan of the Muslim League to become finance minister. With disastrous consequences.
Deshmukh’s appointment was resisted by the government which wanted an Englishman. But that didn’t happen because the RBI Board asked it not to interfere. That’s how independent the RBI was in the 1940s. Unthinkable after 1958.
Deshmukh, while being mindful of government needs, could be quite sharp. He once wrote to the finance department in Delhi, “... I cannot engage to do so in subservience to what amounts to a claim to be consulted... I regard it as important... that the independence of the Reserve Bank be preserved ... and I feel constrained to enter a caveat against any semblance of an encroachment on its discretion.”
But truth to tell, he had it easy. It was only after 1956 that the relationship broke down. The RBI governor’s responsibilities had increased manifold as the political class needed it to cooperate with the government.
As long as Deshmukh was finance minister things worked fine with his successor, Benegal Rama Rau who was governor for eight years from 1950. But Deshmukh resigned in 1956 over the division of the old Bombay presidency into Maharashtra and Gujarat. Bombay was to have been a Union Territory. In his place came the colourful, obstreperous and sycophantic TT Krishnamachari.
Within a year he and the governor had started having rows. Jawaharlal Nehru told Rama Rau to be less uncooperative even when he was right. It’s worth noting here that Rama Rau had not been in favour of nationalisation of the RBI, another Nehru brainwave.
Rao tried hard but found TTK to be altogether too objectionable. He resigned in 1958.
Eight-year term
The reason I have recounted all this history is that I think the time has come to review the policy with respect to the governor’s tenure. The 3+2 approach makes some of them very anxious in the first three years because they want that two-year extension. They become overly cooperative. All the best governors, however, have been appointed for five years or more.
You may well ask what is ‘best’. The answers will vary. But I think two things should matter, whatever the answer. One, the governor’s ego should be left behind at home each morning and two, common sense should prevail till he returns home. For me these are both necessary and sufficient descriptors of ‘best’. The rest is what the deputy governors are there for.