MONETARY POLICY

RSS ideologue S Gurumurthy's appointment to the RBI raises eyebrows. But what will it really change?

After demonetisation, this posting has raised questions of political interference in the central bank’s functioning.

On Tuesday, the Union government appointed S Gurumurthy as part-time, non-official director on the Central Board of the Reserve Bank of India. Gurumurthy is co-convener of the Swadeshi Jagaran Manch, an economic pressure group affiliated with the Rashtriya Swayamsevak Sangh – the ruling Bharatiya Janata Party’s ideological parent – but has few other credentials that would call for association with the country’s central bank. The move has, therefore, been widely seen as a political appointment and as another sign of the Reserve Bank being firmly under the control of the Union government.

Born in Tamil Nadu, Gurumurthy is a chartered accountant, a prolific commentator on current affairs and editor of the Tamil magazine Thuglak. Expectedly, given his association with the Swadeshi Jagaran Manch, he is an economic nationalist, frequently pushing concepts such as reliance on small enterprises and the rejection of foreign capital. Gurumurthy has been associated with Prime Minister Narendra Modi for three decades now and acted as his advisor in the aftermath of the 2002 Gujarat riots, when Modi was the state’s chief minister.

Given this close association, a number of key decisions taken by the Modi government seem to bear Gurumurthy’s stamp. In 2017, journalist Paranjoy Guha Thakurta wrote that Gurumurthy was believed to have been one of the key factors behind the Planning Commission being replaced by the NITI Aayog. The Union government’s Micro Units Development and Refinance Agency, which allows for easier financing of small and medium enterprises, is also in line with Gurumurthy’s thinking on economic nationalism.

Gurumurthy was a strong supporter of the Modi government’s demonetisation of high-denomination currency notes in November 2016, calling it a “a fundamental corrective to the economy much like liberalisation of the 1990s”.

Gurumurthy also seems to have a penchant for falling for hoaxes on social media. On his Twitter profile, he seems to have believed an article in the Onion, an American parody news website, about the ancient Greek civilisation being an elaborate invention as well as a joke video about the Rs 2,000 notes circulated post-demonetisation being embedded with a “nano GPS chip”.

Politicisation of the RBI

Gurumurthy’s appointment is a break from tradition at the Reserve Bank, which is in principle supposed to be independent of the Union government. While the central bank’s board does have two government directors, they do not have voting powers.

Amol Agarwal, an assistant professor at Ahmedabad University, called it an “interesting appointment” given Gurumurthy’s very open political leanings. “However, one has to see a broader context and what we see is a symptom of near absence of transparency around appointments at the Reserve Bank of India and other regulatory agencies,” Agarwal said. “We have ignored this issue till now since mostly eminent or qualified people were appointed but the way the RBI functions is too opaque for a democracy.”

He added, “To take an example: the top officials of Bank of England have to submit their testimonies on joining the central bank. Recently, a deputy governor of Bank of England, Charlotte Hogg, had to resign after MPs criticised her for not disclosing that her brother holds a senior position at an investment bank. Nothing of the sort happens in India where we do not even know the basis of these appointments. We clearly need to bring more transparency in appointments and make the whole thing far more accountable.”

Central bank independence

Questions are also being raised about the Reserve Bank’s independence in the wake of the appointment. Vivek Moorthy, a professor at the Indian Institute of Management in Bengaluru, said the appointment was another example of the central bank’s declining independence after demonetisation. “The fact that the RBI went through with demonetisation shows that its independence had already crumbled back then [in 2016],” said Moorthy.

A number of economists Scroll.in spoke with argued that the position was mostly advisory and that Gurumurthy would have little power to directly affect policy at the bank. But even before this appointment, Gurumurthy was a frequent commentator on the Reserve Bank and is said to have influenced matters, given his closeness to the government.

He sharply criticised Raghuram Rajan, the governor of the bank from 2013 to 2016, and is said to have been a factor in his exit. Backing BJP leader Subramanian Swamy’s demand that Rajan be removed as Reserve Bank governor for “wilfully” wrecking India’s economy, Gurumurthy had tweeted in May 2016:

In June 2016, an Economic Times report said Gurumurthy’s opposition to Rajan had shaped the BJP’s view on the matter as the party did not wish to antagonise the Sangh’s swadeshi camp. Gurumurthy was reported to have even met government officials to discuss the matter.

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