I had the opportunity to work with S Venkitaramanan in the late 1980s when he was finance secretary in the government of India and I was deputy governor in the Reserve Bank of India (RBI). We met frequently to discuss various issues related to the Indian economy. At that time, our concern at the RBI was the impact of excessive borrowing on prices and the balance of payments due to the monetization of debt. Venkitaramanan was aware of this, but he continued to emphasize the government’s compulsions and pressures regarding expenditures.
Venkitaramanan, who passed away on November 18, took over as governor of the RBI at a critical juncture when the country was facing a challenging balance of payment problem worsened by the Iraq-Kuwait War. He faced the situation with great determination and courage. We had to secure the necessary resources to bridge the gap and avoid defaulting on our payment obligations. We took the extraordinary step of shipping gold overseas to raise some of the required foreign exchange. Under the RBI’s Statute, a portion of the gold reserves can be kept outside India, and it can also borrow from other central banks for a short period. We borrowed approximately USD 405 million from the Bank of England and the Bank of Japan by pledging the gold kept outside. (Remarkably, we repaid and redeemed the gold within a short period. Although the Chandra Shekhar government provided approval for such shipping, the bulk of it occurred after the P V Narasimha Rao government took office.)
It’s worth noting that this was a time of rapid changes in the central government. In that context, the responsibility of the Reserve Bank and its governor became even more burdensome. Venkitaramanan utilized all his connections in various international financial institutions to raise the needed foreign exchange. As one commentator noted at the time, he was a “loan (lone) ranger.” It was a challenging time. He and I traveled from one central bank to another to raise resources.
In August 1990, the RBI had written to the government to approach the International Monetary Fund (IMF) to address the difficulties. However, the government and the RBI only pursued this in December, and it proved beneficial. The initial approach to the IMF was in relation to the Compensatory and Contingency Financing Facility (CCFF), designed to assist countries affected by sudden price changes in imported commodities or exports. Our aim, however, was a broader arrangement. Additionally, the government decided to sharply devalue the rupee in June 1991, which was done in two steps by the RBI through its daily announcements.
Despite his inclination towards a liberal monetary policy, Venkitaramanan went along with a tight monetary policy given the circumstances during most of his tenure.
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Venkitaramanan was also a reformer. He initiated banking sector reforms and made the initial change in the exchange rate system by moving towards a dual exchange rate system. He believed in a strong role for public sector enterprises where they could be operated efficiently.
Venkitaramanan had a sharp mind and could quickly grasp the core of any issue. He carefully listened to individuals with differing views, enriching the decision-making process. Overall, he was a courageous person who made the right decisions at the right time. The nation owes a great debt to him.
The writer is former chairman, Prime Minister’s Economic Advisory Council and former governor, Reserve Bank of India