Some Reminiscences by M Narasimhan

Anecdotes from an eventful life
Punam Khaira Sidhu

From Reserve Bank to Finance Ministry and Beyond: Some Reminiscences
by M. Narasimhan. UBSPD. Pages 189. Rs 395

CAMBRIDGE-Majlis Annual Dinner: Chief guest High Commissioner Krishna Menon and guest of honour Dr Todd, professor of chemistry who went on to win the Nobel Prize. Krishna Menon goes against convention and in his after-dinner speech gives a serious long account of India’s dams and projects. Dr Todd responds with an anecdote of a white man and an Australian aborigine. The aborigine was so impressed with the white man’s gun that he threw away his boomerang, which on its return felled him. Dr Todd used the parable to make the point that India’s economic development should not be at the expense of its traditional values, but the High Commissioner was not amused and pulled up the author, then a student at St John’s College in Cambridge and the president of the Majlis, for inviting Prof. Todd.

Then there is a story of a German student brought to Oxford and Cambridge for "political re-education" who was asked by the author whether he had been to Britain earlier, only to be told with a smile, "Many times. I was in the Luftwaffe." Anecdotes such as this pepper Reminiscences, M. Narasimhans look back at his exciting career, a career that commenced when the author was recruited to the Reserve Bank of India as a temporary Research Officer in April 1950 directly after his Tripos. Anecdotal evidence is not without relevance as a source of history, states the book’s jacket and this grandson of Sarvapalli Radha Krishnan has evidently played an important part in the post-Independence economic policy formulation.

HVR Iyengar as Governor of the RBI initiated the practice of sending for junior officers and discussing issues with them. One such matter referred to the author was whether the RBI was obliged to accommodate the government. The author prepared a paper on treasury–central bank transactions, which was sent to the Finance Ministry. It was to be material in the evolution of the RBI. The role of the Central Bank is determined largely by the functions it performs in various countries. The Euro-zone, UK and the USA have independent central banks, which are charged with delivering stable prices and other economic objectives, since popular governments, it is believed, are too easily tempted into inflationary choices. Central banks have either "instrument independence," where there is a target, but the Bank has freedom on how to meet it, like the Bank of England, and "goal independence," where it sets the target too, like the German Bundesbank. Given the "unauthorised overdrafts" of state governments not matched by their funds, clearly the RBI has autonomy only "within the government." There certainly was history in the making at the time. In 1958, Governor Iyengar used the author’s draft paper suggestion for a refinancing agency for utilising the Cooley funds, a part of PL-480 counterpart funds to encourage the private corporate sector in India. He set up the Refinance Corporation, which later merged into the Industrial Development Bank of India (IDBI). Shortly thereafter the author, who used to publish anonymous letters in Economic and Political Weekly (EPW) against the World Bank and the IMF, was selected to be the IMF South Asia Division Chief. On his return to India he traces an interesting anecdotal journey from bank nationalisation in July 1969 to helping set up the State Bank of Mauritius to support the sugarcane farmers, the formulation of the Lead Bank Scheme in India, and suggestions for demonetisation of the Pakistani currency in the newly independent Bangladesh. As Additional Secretary in the DEA he supervised the "swing credits" with Russia and the Eastern bloc and worked to prevent "switch trading," devised the interest tax and exported silver through the STC for BoP benefits and examined the foreign exchange requirements of the defence sector. In February 1978, after serving as RBI Governor, the author went to the World Bank as Executive Director and to the IMF in 1980 in the same capacity and played a critical part in the sanction of SDR 5 billion EFF loan from the Fund. Interesting nuggets dot the narrative like how the Thal Vaishet fertiliser project lost World Bank funding for switching consultants from the World Bank-approved CF Braun to the Haldor Topso Snam Progetti technology and how the then CBI Director T.V. Rajeshwar knew that Prime Minister Indira Gandhi had risen from her seat to shake his hand, when there was none except a chaprasi to see him out, making the author wonder about the reach of the CBI. After a brief stint in Delhi as Finance Secretary and after voluntary retirement as Principal of Administrative Staff College of India (ASCI), the author was to return as Vice-President of the Asian Development Bank (ADB) to Manila. The author reports two events in his tenure which were to convert the bank into "a Bank for half the world." These were the entry of the Peoples Republic of China as a full member and the commencement of ADB lending to India. The author, who counts among his friends and colleagues Dr Bimal Jalan, Mantosh Sondhi, Abid Hussain, Montek Ahluwalia and Y. V. Reddy, all significant players on the Indian economic horizon, wrote the book while convalescing after major neuro-surgery. For a book written without notes or a diary, it’s a remarkable and very readable account from one actively involved in policy formulation, detailing the evolution of central banking and India’s economic policy, relationships with international financial institutions and major trading partners.