Former Finance Secretary Subhash Chandra Garg’s days in North Block became numbered as soon as it emerged that in pre-budget briefings to his political bosses, he had not dwelled sufficiently on the potential downside of issuing foreign currency-denominated sovereign debt. He had focussed chiefly on the positives.
The idea made it to Finance Minister Nirmala Sitharaman’s July 5 speech in Parliament. Soon after which the government found itself pitted against the collective wisdom and counsel of former Reserve Bank of India (RBI) governors and deputy governors. Regardless of profile and background, each one these well-respected economists advised against going down the path of raising sovereign debt in foreign currency, a desperate measure India has not pursued even at the peak of crises such as the one in 1991.
Did Garg Cause Embarrassment to Modi Government By Not Providing Full Information on Sovereign Bonds?
The economic advisers in North Block also did not seek to provide the missing perspective on why, how and in what circumstances the proposal could end up spelling trouble for the economy, rather than proving to be a reliable source of low-cost borrowings for the central government.
Its full import finally became clear after New Delhi heard out RBI Governor Shaktikanta Das on the matter.
The Prime Minister’s Office (PMO) then took the call that the question at hand was not whether or not sovereign debt should be raised in foreign currency but that the Department of Economic Affairs as a whole had failed to provide full information required by government to take decisions that have inter-generation implications and costs.
The drama would have been avoided all together, though. Garg was a key personality at the centre of the avoidable and unprecedented public spat between the government and the RBI over long standing policy differences that ultimately led to the resignations of a deputy governor, Viral Acharya, and a governor, Urjit Patel, of the RBI.
Subhash Chandra Garg’s Career At A Glance
Garg, a 1983-batch IAS officer from Rajasthan cadre, took over as Economic Affairs Secretary in July 2017, succeeding Das, and was designated Finance Secretary in March this year after the retirement of Hasmukh Adhia.
On Wednesday, the Appointments Committee of the Cabinet (ACC) headed by Prime Minister Narendra Modi, a member of which is Home Minister Amit Shah, approved Garg’s ouster from North Block. He was to move to the power ministry to replace Power Secretary Ajay Kumar Bhalla who is to succeed the Home Secretary Rajiv Gauba, and has reportedly resigned from service, preferring to opt for voluntary retirement, rather than move to the new position assigned to him
The rejig of senior bureaucrats saw portfolios of secretaries of as many as 12 departments reshuffled. The ACC has appointed 1985-batch Gujarat cadre IAS officer Atanu Chakraborty as Garg’s replacement as Secretary in the Department of Economic Affairs in Finance Ministry.
Garg’s 24-month tenure in North Block is dotted with a series of policy positions that led to serious complications for economic policy formulation.
Garg’s Fight With the RBI
In August 2018, he circulated a note reigniting a long-drawn battle between the RBI and the Finance Ministry on the central bank’s cash reserves. The two sides have differed on the matter traditionally. Successive governments have negotiated those differences professionally and decorously even as a permanent solution has proved elusive.
Last year, those differences escalated to unprecedented levels when the Finance Ministry sent letters—on three matters where policy differences swiftly turned irreconcilable—to the RBI threatening to initiate the process for invoking section 7 of the RBI Act.
Section 7, dubbed the ‘nuclear option’, had never been invoked in the RBI’s 83-year history until then. It empowers the ministry to issue written directions to the RBI to comply with its decisions.
In response, then Deputy Governor Acharya, with the approval of then Governor Patel, delivered a sharp speech defending the RBI’s autonomy. A particular remark in the speech stoked a huge controversy: that the governments that do not respect their central bank's independence sooner or later incur the wrath of financial markets, ignite economic fire, and come to rue the day they undermined the regulatory institution.
Garg chose to post a retort on Twitter.
“Rupee trading at less than 73 to a dollar, Brent crude below $73 a barrel, markets up by over 4 per cent during the week and bond yields below 7.8 per cent. Wrath of the markets?,” he tweeted, getting into an avoidable and unprecedented public spat with the RBI.
Continuance of Disagreements and Flawed Policy Recommendations
The cross-fire did not go down well on either side. Garg was now clearly one of the key personalities that had a role in the souring of relations. But the government did not act against him.
He did not back down still and got into fresh disagreements with members of an RBI panel appointed to sort out one of the three issues over which the government had sought to initiate the Section 7 process: the formula on basis of which the central bank’s accumulated economic capital could be shared with New Delhi to the satisfaction of both sides.
Under pressure to find resources to finance the government’s spending, at a time tax collections are not growing quickly enough, Garg demanded the transfer of the surplus at one go.
The other members pushed instalments. To press his point, he did not attend a meeting of the panel and wrote a strong dissent note to go with the report of this committee headed by former RBI Governor Bimal Jalan.
Even as the matter was playing out, and the money did not become available in time for making the July 5 budget, another of Garg’s ideas for raising non-tax revenues to compensate for the shortfall in tax collections threatened to stir relations with yet another regulator. Sebi Chairman Ajay Tyagi writing to the finance ministry, requisitioned a review of the Budget proposal seeking transfer of 75 per cent of the market regulator's surplus funds to the central government.
The PMO’s patience finally broke when it emerged that the budget’s estimates for tax revenue had been pegged much in excess of the provisional actuals reported by the Controller General of Accounts (CGA) figures, drawing charges from the Opposition of fudging, and forcing the unenviable task of defending the budget estimates in Parliament on Sitharaman.
The order transferring Garg, as part of the overall bureaucratic reshuffle, was issued a day after Parliament approved the budget.
(Puja Mehra is a Delhi-based journalist. Her first book, The Lost Decade (2008-18): How India's Growth Story Devolved Into Growth Without a Story, has been published by Penguin Random House. This is an opinion piece and the views expressed above are the author’s own. The Quintneither endorses nor is responsible for the same.)