Man Of Currency

But those who know Bimal Jalan and his remarkable agility in handling controversial and complex situations will vouch that he’ll yet manage to write that book on India’s future and the conflicting dimensions of economics, politics and ethics—"a fully authored one, unlike the edited ones I’ve been doing". And also lead an eventful life, participating in the public decision-making process in Parliament, after graduating from remote-controlled public policy issues on Mint Street, before he considers becoming Reddy’s boss again.

"It’s nice to move on after such a long time. And it’s certainly a great privilege to be so nominated," says an obviously relaxed Jalan, looking a very young 62 despite the silvery hair, dressed in his trademark shirtsleeves and sandals, and very much at ease in his spacious chambers at RBI’s Delhi office. It’s the same air of freshness that he claims to have brought in to the sacrosanct ivory tower of India’s central bank. "The RBI is an open institution now, much more consultative and reactive. You say why should the RBI worry about clean currency notes? Or make it easier for you to pay your taxes. Or allow you to meet most of your forex needs without coming to RBI. But it should. Unfortunately, that’s not the way most of our public institutions function."

To the average Indian, Jalan is the man to equate with soaring dollar reserves, inching to $86 billion now, and the sharpest drop in retail lending rates, causing a virtual boom in consumer and home loans. He may have achieved these with a little help from favourable global trends, yet our grateful acknowledgement here may be no less in value than what former governor M. Narasimham wrote to him: "You have not merely been a successful governor but a great governor, the likes of whom we have not had over the last 50 years. I believe you will take your place in the pantheon, along with the likes of James Taylor and C.D. Desmukh." Or what former deputy governor S.S. Tarapore says: "He had a splendid and varied career and certainly one of the most successful stints at the RBI."

More practically, says Crisil chief economist Subir Gokarn, over the past five years "the critical change in monetary management is that it has become a 24x7 exercise, driven by the compulsions of the global economy, rather than a set domestic timetable. This is an important transformation that has significantly improved the economy’s capability to deal with international turbulence". Taking over in November 1997 at the height of the Asian financial crisis, Jalan saw through the troubles in a way that the economy was scarcely hurt. And through all the successive problems—US sanctions, Kargil war, oil crisis, the US invasion of Iraq, and the Damocles’ sword of a war with Pakistan—Jalan’s crisis management skills have never been in doubt.

The shape of the new monetary management system was a direct result of the turbulence experienced. "The most significant achievement of the past few years—I wouldn’t call it a personal achievement, because it’s been a collective effort—is that the so-called external constraints have disappeared," says Jalan. In the early ’90s, few in North Block could have dreamt that forex inflows will drive even domestic liquidity a decade on. Some, though, are unhappy with Jalan. Former chief economic advisor Ashok Desai calls him a very cautious liberaliser. Another former CEA, Arvind Virmani, rues the oversterilisation for the past three years which kept the short-term rates in check at a time when the economy was in poor shape. He also contends that the smart external account position is because of the steady tariff drop of the ’90s.

Says rgf director Bibek Debroy: "Any RBI governor is almost tautologically conservative and worried about inflation. So these reserves were not built in the best of ways." Jalan concedes: "Most of the dollars coming into India are being sent by people for investment or buying stocks or land. It’s not going into growth. I don’t see it as a problem of plenty, but more as an opportunity to channel this for growth. After the Asian crisis, external management was important. But, since last year, growth has been the primary objective." Should the rupee then strengthen and external commercial borrowings be curtailed? What about the exporters? Desai calls this "an altogether retrograde step".

Unfortunately, "there are no ultimate truths in economics", says Jalan. "And no final theories for emerging markets like India. Don’t go by the prevailing fashion. In the US, they’re worrying about fiscal deficit now. Exporters have a point but capital goods importers are happy. We are balancing different considerations here, very crucial issues, and no individual or institution should be allowed to decide alone. All policies should be interactive, open to debate, it keeps you on your toes."

But doesn’t too much caution lead to unnecessary interventions? "No, I don’t support an interventionist policy. I don’t believe that the economy can be run on a fixed grid like a train, and you can temper its speed or fine-tune its track. I think there’s too much intervention in India, even in the forex market. We’re at least not controlling anything, everything is left to market forces. But when the chips are down, they won’t work alone. You have to be watchful and accountable."

So in the forex market, Jalan has intervened unexpectedly, to let dealers know that Big Brother is watching. But why did interest rates take so long to fall? What about the banks? "Their health is pretty good just now, barring a few segments. Even accounting for the gilts income, their operating spread is very good. As for interest rates, the 10-year bond rate is the lowest ever, but the bank rate is still quite high. We have to reduce our spreads, our operational costs and there has to be much more convergence. But these are also conflicting considerations. Savers don’t want the interest rate that borrowers want."

As a farewell gift, S&P’s has upgraded Indian banks’ rating to stable. The encomiums from international financial circles had come much before—that includes a recent IMF study of exchange management in 40 countries, which puts India at the forefront. But within India, the appreciations have been muted, matching his self-effacing style. Instead of, as predecessor C. Rangarajan hoped, being "a peace-time statesman", all his energies went to imparting stability to the financial economy despite a failing fisc.

"Success," says Saumitra Chaudhury, ICRA economic advisor, "breeds its own problems. What the critics obviously forget is that the REER (inflation-adjusted exchange rate against major currencies) is still below 100. And the rupee will come under pressure the moment there’s even a hint of a war with Pakistan." A quintessential political economist, Jalan would agree. "We cannot have complete capital convertibility until the rupee becomes a held currency, something that investors carry in their portfolios. Today, if I sell dollars, everybody buys. But if I sell rupee, everybody sells."

Perhaps Jalan’s greatest achievement was his seamless transition over two opposing regimes—the United Front and the NDA. Surely there were many frictions emerging for Jalan, a known non-aligned, but they were all adroitly handled. So much so that this progeny of Gandhi’s staunch followers finds himself the favourite candidate for a cabinet berth in a bjp government. It’s a tougher job, he agrees, quite suitable but it’s not on the cards. Huh, can he see the cards? "Who can see the cards?" he grimaces. Clearly, even Bimal Jalan has his limitations.