Subbarao starts another long haul

Duvvuri Subbarao completed a full cycle only last week. And now, he has to prepare for the next long haul.

In 2008, within days of taking charge as the Reserve Bank of India’s (RBI) governor, Wall Street investment bank Lehman Brothers collapsed and the world went into a recession—the aftershocks of which were felt in India.

In a startling similarity, his re-appointed comes only a few days after the sovereign rating of United States was downgraded by Standard & Poor's, for the first time in financial history and the world stares at another economic slowdown, with India preparing for the after effects.

During his first term, Subbarao had to immediately react to the liquidity crunch that domestic banks and companies faced, by cutting cash requirement of banks and interest rates aggressively. This time, though, it is unclear if there would be another credit crunch, which economists think of as a low probability-high impact event, but the governor and his team have already taken fresh guard. It has said the central bank's priority is to maintain adequate liquidity in the rupee and the foreign exchange market to avoid any volatility.

The proactive response of RBI, in tandem with the government, is now widely seen as the reason for the country emerging from the 2008 crisis rather unscratched. "Indian banks have emerged out of the crisis as strong as ever. The non-performing assets are low, there is reasonable growth in credit and deposit. Subbarao deserves credit for ensuring this. He has always said RBI would ensure there is adequate liquidity in the system and credit demand would not suffer due to liquidity tightness," said Deepak Parekh, chairman, HDFC.

While RBI was aggressive in cutting rates in 2008, the same aggression was not visible in 2010 when inflation reached double digits. As a result, Subbarao's famous 'baby steps', that, is raising interest rates by a moderate magnitude, drew flak from several quarters, as inflation stayed stubbornly high for more than a year now. At the same time, policy commentators also say there were elements in inflation like supply-side constraints, which were beyond the control of the central bank.

One of Subbarao's significant achievements was to take RBI beyond market participants and policy makers to the common man, explaining the importance of central bank in everyday life. His outreach programme, covering nooks and corners of the country, and thrust for financial inclusion is set bring more individuals under the ambit of formal finance.

It was also during Subbarao tenure that RBI expressed its willingness to offer fresh banking licences to private sector players after nearly six years. More importantly, it was also open to offering licences to industrial houses. However, though the proposal was mooted last year, no major policy announcements have been made.
 

I always knew it will come because it is appropriate...Continuity is logical and is definitely on the basis of performance. It is particularly valuable at a time of crisis YV REDDY, Former Governor, RBI	The continuity is welcome, particularly due to economic and global problems. It is an acknowledgement of Subbarao’s handling of difficult situations SS TARAPORE, Former Deputy Governor, RBI
The government has taken the right decision. Subbarao has done an excellent job in managing the financial system during the crisis that gripped the whole world C RANGARAJAN, Chairman, PMEAC	I welcome the re-appointment. It should have been for at least three years. He has been the governor during very difficult years ...He is very competent RAKESH MOHAN Former Deputy Governor, RBI
I was certainly expecting Subbarao will get an extension. He has protected the Indian financial sector extremely well even when the world was falling apart  DEEPAK PAREKH Chairman, HDFC	It will be good, because at this point of time, extension of the RBI governor’s term is needed...We decided we should do it quickly, to ensure that there is no uncertainty PRANAB MUKHERJEE Finance Minister