Interview: Shaktikanta Das good at short-term fixes, says ex-finance secy Subhash Garg
After the release of his new book 'We Also Make Policy', the former finance secretary spoke to Moneypoise about political parties' social and economic wings' influence on the finance ministry's policies and North Block's media relationship in his final weeks in office.
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According to former finance secretary Subash Chandra Garg, Reserve Bank of India Governor Shaktikanta Das has the "knack" for finding solutions that appear to resolve the issue, at least temporarily. Garg recalled Das's role during his tenure in the finance ministry.
Garg told Moneypoise that some of Das' decisions as secretary of economic affairs, including the conversion of food subsidy payments to the Food Corporation of India (FCI) into loans from the National Small Savings Fund (NSSF), "pleased everyone" and helped prevent large fiscal deficits. Das' book, "We Also Make Policy," was published after Garg expressed his opinion on the matter.
The Centre began providing loans to the FCI from the NSSF in 2016–17, as opposed to full food subsidy payments. These loans accumulated rapidly and assisted in constraining the fiscal deficit of the central government. The approach garnered significant criticism due to its purported detrimental effect on the credibility of the government's budgetary projections through the artificial maintenance of a low fiscal deficit.
Nevertheless, it appears that the government was able to incur a greater fiscal deficit due to the pandemic; loans to FCI and other practices, including fully-serviced bonds (FSBs), ceased in 2021-22. This was one year after the Centre's fiscal deficit reached an all-time high of 9.2 percent of GDP, which was surpassed by the Centre's repayment of the FCI's loans in 2020-21 through the transfer of an enormous food subsidy amounting to Rs 3.44 lakh crore. The action was commended for its enhanced fiscal transparency.
FSBs are bonds issued by public sector enterprises in which the Union government assumes the repayment of both the principal and interest.
Das held the position of economic affairs secretary between August 2015 and May 2017. In July 2017, Garg assumed leadership of the Department of Economic Affairs.
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Avoiding friction
After a particularly turbulent few years during which relations between the government and Mint Street deteriorated rather swiftly, Das was appointed governor of the RBI. Following a challenging three-year tenure as governor under Raghuram Rajan, the relationship between the Reserve Bank of India (RBI) and the finance ministry deteriorated further during the tenure of finance minister Urjit Patel, who tendered his resignation in December 2018. Viral Acharya, the deputy governor, resigned on July 23, 2019, citing "unavoidable personal circumstances" as the reason for his departure.
An important factor in the escalation of tensions between 2017 and 2019 was Garg's belief that the RBI possessed unnecessary excess reserves. Although a committee was established under the leadership of Bimal Jalan to investigate the issue subsequent to Patel's departure, Garg persisted on submitting a dissenting opinion in the form of a dissent note, despite the fact that his was obviously a minority viewpoint. Nevertheless, that plan failed to materialize due to his July 24, 2019 transfer to the power ministry and his termination from the Jalan committee prior to the completion of its report.
Although he lacks direct evidence, Garg hypothesized that Das might have discovered a solution in this instance as well by proposing a substantial surplus to the government in return for a finance ministry report devoid of any dissenting opinion.
"If you can come up with these solutions, perhaps open friction can be avoided," Garg added.
The RBI transmitted a record Rs 1.76 lakh crore to the Centre in August 2019, comprising Rs 52,637 crore in excess provisions and the remaining Rs 1.23 lakh crore representing the surplus for the 2018-19 fiscal year.
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No political influence
In regard to policy formulation, the Narendra Modi administration has consistently encountered challenges in maintaining a clear demarcation from the party. The issuance of sovereign bonds denominated in foreign currencies was a central proposal highlighted in Garg's previous budget. Nevertheless, the scheme was discarded subsequent to encountering a deluge of censure from diverse sources, including the Swadeshi Jagran Manch, the economic arm of the Bharatiya Janata Party and former RBI governor Raghuram Rajan.
In contrast, Garg firmly maintained that "there was no formal or informal involvement with any social or political factions of the party."
"Neither discussion nor interaction with RSS or the Swadeshi Jagran Manch." "Permit me to clear that up," he stated.
"Their response validated the notion that they were not advised regarding the sovereign bond proposition." Garg further stated that this proposal would not have been included in the budget if they had been.
Following the budget, the proposition was defended, according to his recollection, including by finance minister Nirmala Sitharaman. Twenty days after the post-election budget was presented on July 5, 2019, and prior to his departure from the finance ministry on July 24, 2019, Garg stated that no one had any doubts regarding the issuance of sovereign bonds.
"It fizzled out or wasn't pursued, but that was subsequently," he added.
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Relationship with the media
A defining characteristic of Nirmala Sitharaman's administration during which Garg served as finance secretary for fifty-five days was the decision to prohibit journalists from accessing the North Block. This restriction remains in effect to this day. Although Sitharaman had instigated the action, Garg stated in his book that he enthusiastically embraced it.
Garg stated to Moneypoise that he "never had a problem with the media," but he did object to journalists loitering around the finance ministry, as "the moment you step out, a swarm of people try to ask you a question."
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Conferences with the press are required. Nonetheless, regulation and rationality are required. Such aimless exploration of the North Block is not recommended. That is certainly not satisfactory.
When asked if the finance ministry under former finance minister Arun Jaitley would have taken such a step, Garg responded with a chuckle and the word "No."
"He once adored this." None of his issues pertained to the media. "He was a conversationalist," the former bureaucrat reminisced with a gleam in his face, seemingly transported to a bygone era.
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