Meet the decision makers who steered India through the Lehman crisis

D Subbarao, C B Bhave and Montek Singh Ahluwalia worked with P Chidambaram and Manmohan Singh to ensure India came out unscathed from the global crisis

Palaniappan Chidambaram has been acknowledged by D Subbarao to have pushed the latter’s candidature as Reserve Bank of India (RBI) governor in September 2008. But his term ended perhaps with less warmth than it started. The beginning of a frosty relationship between the two can be traced back to the financial crisis when Chidambaram constituted a liquidity management committee and asked the central bank to nominate a representative.

This was seen to intrude into the territory of the RBI, noted Subbarao in his book Who Moved My Interest Rate? The disagreement between the two came in the early days of Subbarao’s tenure when there was a lot of debate about the governor’s independence vis-à-vis the government.

Subbarao called up then Finance Minister Chidambaram and conveyed his opinion about the action being inappropriate. Chidambaram argued that a committee with external participation would help respond better to the situation of the time when liquidity had become such a major problem. 

Subbarao responded saying that the need for such a committee could have been conveyed informally without taking the RBI for granted, ultimately saying that the central bank would not participate.

It is unclear how the rift may have hit the management of the financial crisis, because an even more devastating event caused Chidambaram to move on from the finance ministry to home ministry shortly after Mumbai was struck a month later with the November 2008 terror attacks. As the terror attacks unfolded, Subbarao was in touch with C B Bhave of the Securities and Exchange Board of India and both were in broad agreement to open markets as early as possible after the terror attacks in the heart of the financial capital. Chidambaram’s push to open the markets as soon as possible was a strong motivational factor in creating a sense of urgency.

And they did open within two days of the attack. Some of the necessary discussions of the time happened on the 18th floor of the Reserve Bank office at Fort, where the view was of security forces battling terrorists as one of India’s iconic buildings lay under siege. 

“The onion dome of the iconic Taj Mahal Palace hotel in Colaba belching out smoke, will forever remain etched in my memory as a reminder of that gloomy period,” said Subbarao in his book.

But Subbarao wasn’t the only one dealing with pressures on handling the crises.

C B Bhave too dealt with pressures from global players over tighter trading regulations during the financial crisis at the end of his tenure. 

The stock market regulator had put in place safeguards which applied to both domestic as well as foreign institutions. A global regulator suggested that foreign institutions could perhaps be dealt an easier hand, a request that Bhave ultimately refused. Indian bourses were spared a payment crisis even as the world’s biggest institutions collapsed.

Chidambaram’s move to home ministry to deal with security challenges after the terror attacks had Prime Minister Manmohan Singh taking temporary charge of the finance ministry. Besides his own enviable track record as finance minister during the crisis years of the 1990s, he had others on his team who had faced their fair share of crisis.

Montek Singh Ahluwalia, who was deputy chairman of Planning Commission in 2008, was one such person, who had left the World Bank to come back to India as economic advisor in the Finance Ministry in 1979 smack in the middle of a storm. There had been a drought, inflation was soaring, growth was nowhere to be seen and the budget was a disaster. Those early experience may well have taught him to keep his cool in subsequent crises, helping him emerge as a key player in navigating the crises. 

Ahluwalia was a key member of the government team, keeping the prime minister informed about what was going on.

Others involved included RBI Deputy Governor Rakesh Mohan, K P Krishnan, joint secretary of capital market division, Department of Economic Affairs and Finance Secretary Arun Ramanathan.

All these people came together to see that India came out unscathed from the global financial crisis.