Rbi Governor Quotes

The RBI Governor influences a wide range of microeconomic and macroeconomic issues in the country. His signature appears on currency notes and he controls the country's monetary, currency, and credit systems. His actions influence not only the entire banking system, but also stock markets, the economy, and people's lives at large. It is said that if he sneezes, markets tend to catch a cold!

According to him, the RBI had to be like a wife in a Hindu joint family who advises but does exactly as she is told.

Deshmukh’s job, as the British saw it, was to behave as an English governor: help the war effort, which meant help raise money. But the Indians were not feeling very cooperative. So the RBI lent money to the British by means of huge deficit financing, which would be paid back in pounds.

If Britain had lost, it would have been that much money down the drain because the Germans could hardly be expected to honour British debts. In the end, the British simply decided not to honour their debt to India, at least not in full. The

Taylor’s task was clear: he was expected to keep things on an even keel, giving the impression of being independent while doing what the government wanted.

The tradition has lasted to date.

The war solved, in one stroke, both the interest rate and the exchange rate conflicts between the government and the RBI. Unfortunately,

1943, it had become clear to the British, though not to their prime minister, Winston Churchill, that they would have to leave India. The only question was how soon. This was a major factor in the appointment of Taylor’s successor, an ICS officer called C. D. Deshmukh who, incidentally, occupied 1, Safdarjung Road for a while in 1950. This house, which was allotted to Indira Gandhi, in 1964, is now a museum.

In June 1960 there was a run on the bank’s deposits and the bank collapsed. Even now, no one knows what really happened. Had the RBI been vindictive? Was it being overly cautious? Were there some political reasons for the action, as many now believe? There are many unanswered questions. But there were two positive effects: the birth of deposit insurance and tightening of the RBI’s grip on commercial banks because the government empowered the RBI to forcibly merge weak banks. It

The Second Plan had turned out to be a limited economic and splendid political success. When it ended in 1961, no one could have thought that by the end of the decade India would be economically prostrate,

In a fit of anger, Sir Osborne had also once told the government that ‘as long as I run the Imperial Bank, I will not be run by London or anywhere else, … I would not tolerate interference with my business’. In 1936, he had written in a letter that he was ‘sick to death’ of the government’s attempt to ‘dominate the RBI’. But

In 1956, at Aavadi, the Congress decided that the government would be the primary agency for promoting industrialisation. The Second Plan was launched a year later and it was predicated on an economic unorthodoxy for those times: deficit financing. This brought the RBI into direct conflict with the government.

P. C. Bhattacharya was the first non-ICS man to be appointed to the job and he had a soft ride. But in what would cause a major uproar today in Parliament and in the media, when the rupee was devalued by a huge 36 per cent in 1966, he was merely informed. The decision had been taken by Indira Gandhi in March that year when she visited the United States and met the representatives of the World Bank and IMF. But she kept it to herself till June. Even the finance minister didn’t know, let alone the poor RBI governor.

The Tonnage Act, now called the Bank of England Act, was amended repeatedly over the next couple of centuries. The result was classic British fraud: the Bank of England came to be seen as a government institution, even though it was owned by private individuals. The board, however, was appointed by the government. In 1935, the British would impose the same model on India when the Reserve Bank of India was created. What had started as a Swedish necessity in 1678 and was a British one in 1694, became a global fad over the nineteenth and early twentieth centuries. Country after country set up central banks,

In a fit of anger, Sir Osborne had also once told the government that ‘as long as I run the Imperial Bank, I will not be run by London or anywhere else, … I would not tolerate interference with my business’.

may show that nothing has changed. As now, then too the government wanted a subservient governor. ***

Oddly, the United States came rather late into the picture. It was only in 1913, thanks to the efforts of J. P. Morgan, that it got its own central bank, and called it the Federal Reserve Board or the Fed. The Fed would be the ‘lender of last resort’—to save greedy banks which had gone bust—something that happened all too often then.

As is the way of India, where things take decades to get started, the first official proposal to have a central bank came in 1913. Austen Chamberlain, a politician, was asked to analyse the gold exchange standard, which was used to maintain the exchange rate of the rupee at one shilling four pence. His commission contained no Indians but it did have John Maynard Keynes. The commission’s report was highly critical of the way things had been run till then, not because Indians were at the receiving end but because the British were not getting the best of it. It

The Swedish economy—dependent, then, on mining and timber—was quite big in the mid-17th century. It needed money to finance its trade. But there was a problem: its currency, the daler, was made of heavy copper plates measuring one foot by two feet! The king needed a bank to store his ‘coins’. No good ideas were forthcoming from his subjects until a Latvian man called Johan Palmstruch convinced him that he would do it. He would set up the bank and, in return, give the king half the profits. When the king died, problems arose which were eventually resolved by the oldest sovereign trick in the book: the nationalisation of Palmstruch’s bank. Thus the concept of a central bank was born.

Today, Palmstruch’s bank is known as the Sveriges Reiksbank. It awards the Nobel Prize in economics. Meanwhile,

England, then, like Pakistan today, was belligerent, untrustworthy and constantly at war with someone.

Overall, the British officers in India regarded him as a colonial who sympathised with the natives. All that could have still been ironed over, but when he called Viceroy Lord Linlithgow ‘a weak ass’, it was the last straw. He had to go. So in July 1937, just two years after taking over as the first governor, he was forced to resign.

Keynes said India should have a central bank which could be created by merging the three presidency banks. The new bank, to be called the Imperial Bank, would manage government balances, government debt and note issue. ‘Supreme Direction’ would be vested in the governor of the bank, the deputy governor and a representative of the government along with three or more ‘assessors’. The new bank would be a central bank as well as commercial bank. Everyone agreed that this was a good idea, but thanks to the First World War, nothing happened till 1926 when another committee was formed under Edward Hilton Young. He produced a short report saying what Keynes had said thirteen years earlier. In January 1927 a bill was passed authorising a central bank for India. Eight years later, the Reserve Bank of India came into being—on 1 April 1935. It