'We also make policy' - Subhash Chandra Garg lifts lid on finance ministers, govt-RBI tussle

Garg’s time in North Block coincided with a tumultuous period for the finance ministry-Reserve Bank of India relationship as well as the Indian economy in general.

Tell-all memoirs on Indian politics and policy have been in short supply in recent years. Technocrats who have served under the Bharatiya Janata Party-led National Democratic Alliance government have indeed published books on their experiences. But most of them have been collections of their public talks and documents, with a few updated chapters.

Filling this hole is Subhash Chandra Garg's "We Also Make Policy – An Insider's Account of How the Finance Ministry Functions'. It is perhaps telling that it has taken someone like Garg, who retired from the Indian Administrative Service (IAS) in October 2019 after he was shunted to the Minister of Power from the top bureaucrat's position in the Ministry of Finance, to write such a book.

Also Read: Garg says Sitharaman had pre-conceived notions about him

The former finance secretary served a turbulent 55 days under Finance Minister Nirmala Sitharaman before he was finally shown the door. Writing in his book, released by HarperCollins on October 1, Garg's relationship with the new finance minister deteriorated so quickly that he was seemingly left with no choice but to leave the service.

Garg's book – spanning the 30-or-so months from his last few weeks in Washington, DC, as India's executive director in the World Bank to serve out his notice period as the power secretary – does not hold back in criticising or admiring the officials or ministers he worked with. If Sitharaman came under fire, her full-time predecessor, the late Arun Jaitley, was showered with praise.

Outside the finance ministry, Prime Minister Narendra Modi and Home Minister Amit Shah earned Garg's admiration, as did Modi's then principal secretary, Nripendra Misra, his then additional principal secretary – and current principal secretary – PK Mishra, and former Chief Economic Adviser Arvind Subramanian.

Battles with the RBI

If Garg fell out rapidly with Jaitley's successors, his equation with Reserve Bank India (RBI) Governor Urjit Patel was perhaps never even cordial, with North Block and Mint Street clashing on several issues between mid-2017 and end-2019, chief among these being the central bank's Economic Capital Framework (ECF). The framework determines how much reserves the RBI should hold and how much money could be transferred every year to the central government as a surplus or dividend.

Garg's interest in the matter was piqued at his first meeting as a member of the RBI's Central Board of Directors in the capacity of Economic Affairs Secretary in August 2017. The RBI's proposal to retain Rs 13,400 crore of its surplus of Rs 44,200 crore for 2016-17 (July-June) – after it had transferred the entire surplus in each of the last three years – led Garg to examine the central bank's ECF – which he deemed to be unreasonably stringent.

Also Read: How RBI's dividend gives Centre a much-needed helping hand

At one meeting, Garg writes that Patel said the ECF "would be reviewed only over his (Patel's) dead body". As the economic situation – and communication between the finance ministry and RBI – worsened in 2018, Prime Minister Modi convened a meeting on September 14, where he said the RBI "could not be squatting on excess capital like a snake sits on a treasure".

What followed has been recounted in copious detail previously, but matters reached a head when, amid accusations of the government raiding the RBI's reserves and other matters, such as the central bank's Prompt Corrective Action framework for banks, Deputy Governor Viral Acharya delivered his now famous 'wrath-of-the-markets' speech on October 26, 2018. A month and a half later, Patel had resigned as governor. Acharya, too, exited the RBI in July 2019, some six months before his three-year term ended.

Also Read: Viral Acharya calls on central bankers not to compromise, embrace risk of losing job

Garg's book, of course, offers his version of events. In his own book 'Overdraft: Saving the Indian Saver', released in July 2020, Patel focused on tensions surrounding the Insolvency and Bankruptcy Code, where he said India's fledgling bankruptcy law was deliberately weakened by sowing "disorder" as "the prospect of a transparent, time-bound process on autopilot for recovering debt was unsettling". In a chapter titled 'The Empire Strikes Back', Patel described the aftermath of the RBI's famous February 12, 2018 circular, which spelt out an amended framework for the resolution of banks' stressed assets, that was finally struck down by the Supreme Court in April 2019.

Exit from North Block

A day after Acharya bowed out of the RBI on July 23, 2019, Garg's transfer order to the power ministry was served - less than two months into Nirmala Sitharaman's term as finance minister. But signs that the end was near were visible in early 2019, with Garg sensing Modi had "developed a certain coldness" towards him.

Things could have turned out rather differently. Following Urjit Patel's shock resignation on December 10, 2018, Garg, along with Shaktikanta Das and the then chairman of the Securities and Exchange Board of India (SEBI), Ajay Tyagi, were in the running for the top post at India's central bank.

"In terms of professional abilities and competence, I thought I was qualified to be the RBI governor. However, I also realised that I had been virtually at the forefront of the tussles between the RBI and the government in the past six months. As I was the face of the government, I was quite likely to be persona non grata for RBI management and staff," Garg writes.

Garg prefaces his book by saying he had tried to provide a "true and fair account" in the book. While those in the government now may or may not have something to say about that, 'We Also Make Policy' certainly is an insider's account of how the finance ministry functions - from the nuances of key policies such as electoral bonds to bank recapitalisation to the dynamics that provide direction to them.