Interview: Shaktikanta Das good at short-term fixes, says ex-finance secy Subhash Garg

Garg's book 'We Also Make Policy', released last week, has been in the news for its insider’s take on the how the finance ministry functions.

Reserve Bank of India Governor Shaktikanta Das has the "knack" of finding solutions that seem to fix the problem, at least in the short run, former finance secretary Subash Chandra Garg said, recalling the role played by Das during his time in the finance ministry.

Speaking to Moneycontrol following the release of his book, 'We Also Make Policy', Garg said some of Das' decisions as the secretary of economic affairs — such as converting food subsidy payments to the Food Corporation of India (FCI) into loans from the National Small Savings Fund (NSSF) — helped avoid large fiscal deficits and "pleased everyone".

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Starting 2016-17, the Centre started giving loans to the FCI from the NSSF, instead of full food subsidy payments. These loans quickly mounted and helped limit the magnitude of the central government's fiscal deficit. The method was widely criticised as it was said to adversely impact the credibility of the government's budget numbers by keeping the fiscal deficit figure artificially low.

However, the pandemic seemingly allowed the government to have a larger fiscal deficit, and the loans to FCI — as well as other practices, such as fully-serviced bonds (FSBs) — were discontinued in 2021-22, a year after the Centre's fiscal deficit touched a record 9.2 percent of GDP as the FCI's loans were fully repaid by the Centre by the transfer of a huge food subsidy of Rs 3.44 lakh crore in 2020-21. The move was celebrated as improved fiscal transparency.

FSBs are bonds issued by public sector undertakings where the repayment of the principal and interest is borne by the Union government.

Das served as the economic affairs secretary from August 2015 to May 2017. Garg took charge of the department of economic affairs in July 2017.

Avoiding friction

Das was appointed the RBI governor after a particularly turbulent few years in which the relationship between the government and Mint Street deteriorated rather rapidly. After a difficult three years under Raghuram Rajan's governorship, the RBI's rapport with the finance ministry took an even bitter turn under Urjit Patel, who resigned in December 2018. His resignation was followed by the exit of deputy governor Viral Acharya — due to "unavoidable personal circumstances" — on July 23, 2019.

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A key reason for the heightened tensions in 2017-2019 was Garg's view that the RBI held excess reserves it did not need. While a committee headed by Bimal Jalan was formed to look into the matter following Patel's exit, Garg insisted on writing a dissent note as his was clearly a minority view. However, that did not see the light of day as he was transferred to the power ministry on July 24, 2019, and ceased to be member of the Jalan committee before its report was finalised.

Garg suggested that Das may have found a solution in this case too — although he has no direct information — by offering a large surplus to the government in exchange for a finance ministry report with no dissent note.

"If you can come up with these solutions, perhaps open friction can be avoided," Garg said.

Also Read: Would have transferred full surplus to govt had I become RBI Governor, says Subhash Garg

In August 2019, the RBI transferred a record Rs 1.76 lakh crore to the Centre, including Rs 52,637 crore identified as excess provisions, with the remaining Rs 1.23 lakh crore being the surplus for 2018-19.

No political influence

The Narendra Modi government has always struggled to distance itself from the party when it comes to policymaking. A flagship proposal announced by the Centre in Garg's last budget was the issuance of sovereign bonds in foreign currencies. However, the plan was abandoned after it met with a barrage of criticism from a variety of quarters ranging from former RBI governor Raghuram Rajan to the Swadeshi Jagran Manch — the Bharatiya Janata Party’s economic wing.

Garg, however, was emphatic in his assertion that there was "absolutely no engagement, formal or informal, with any of the social or political wings of the party".

"Zero discussion, zero interaction with Swadeshi Jagran Manch or RSS. Let me be clear on that," he said.

"Their reaction confirmed that they were not consulted on the sovereign bond proposal. If they had been, this proposal would not have made it to the budget," Garg added.

He recalled that the proposal was defended after the budget, including by finance minister Nirmala Sitharaman. In the 20 days between the presentation of the post-election budget on July 5, 2019, and his exit from the finance ministry on July 24, Garg said there was no second thinking on the sovereign bonds issue from any quarter.

"It fizzled out or wasn't pursued, but that was subsequently," he said.

Relationship with the media

A key feature of the 55 days Garg served as finance secretary under Nirmala Sitharaman was the decision to ban journalists from freely entering the North Block — a measure that remains in force till date. In his book, Garg wrote that while the step was initiated by Sitharaman, he welcomed it.

Garg told Moneycontrol that he "never had any problem with the media", but he did have an issue with journalists milling around the finance ministry, which created a nuisance, as "the moment you step out, a swarm of people try to ask you something".

"Press conferences are necessary. However, we should have some sanity and regulation. That sort of roaming around (the North Block) is not desirable. That is not good."

Asked if the finance ministry would have made such a move under former finance minister Arun Jaitley, Garg laughed, and said, "No".

"He used to love this. He had no problems (with the media). He was a conversationalist," the former bureaucrat said smilingly, as if transported back to a happier time.