The Reserve Bank of India is celebrating its 80th year. Earlier this week, the Prime Minister participated in a special event in Mumbai to commemorate this. The Chennai branch, as befitting a regional office, will, I am sure, have its own programmes to observe this important milestone. In all these years, a continuing thread of debate has been the status of the RBI. Is it truly autonomous or is it merely an agent to carry out the Finance Ministry’s wishes? Ironically, the first time this debate occurred was when two men from Madras were at the helm of affairs — T.T. Krishnamachari as Finance Minister and Sir Benegal Rama Rau, ICS, as Governor of the RBI. Sir Rama Rau held the post from July 1, 1949 to January 14, 1957, a long tenure that sadly ended in an abrupt resignation owing to the fight for supremacy between the bank and the ministry. In his wonderful biography Nice Guys Finish Second, B.K. Nehru, ICS gives us an almost blow-by-blow account of the quarrel that resulted in Rama Rau’s exit. It had to do with that persistent grey area — control over interest rates. TTK being a dictatorial personality considered it his prerogative while Rama Rau believed (rightfully) that it was the RBI’s responsibility. TTK dismissed this, claiming that the RBI was a subordinate office to the Finance Ministry.
Matters came to a head when TTK levied imposts on certain transactions that immediately caused a rise in interest rates. Rama Rau protested but when he found no response from TTK, took the matter to Prime Minister Nehru, who in turn put the matter up for discussion at a Cabinet Meeting to which Rama Rau was also invited. TTK considered this a personal affront. What happened next is best told in Nehru’s own words — “Sir Biren Mukherjee, Chairman of the Indian Iron and Steel Company and I were waiting to see the Finance Minister in the ante room to his chamber. TTK came into the room through one door, Rama Rau through the other. TTK let fly in no uncertain terms, and in the loudest of voices. Rama Rau, the mildest of men, did not know how to handle this unmeasured onslaught. Biren and I disappeared through the door leading to the verandah. It would not have been appropriate to witness this undignified brawl.”
The PM and the Cabinet closed ranks in support of TTK. Having been embarrassed in public, Rama Rau immediately resigned, only to be succeeded by another Madras man — HVR Iengar, ICS. The fallout however, resulted in an immediate loss of autonomy for the RBI, something that it has recovered only in the last two decades to an extent. It was also one of the earliest instances of a high-ranking and capable bureaucrat being made to quit owing to an uncontrolled ministerial outburst. An interesting aside is that most of Indira Nagar, Adyar, came up on property owned by Sir Benegal Rama Rau and his wife Dhanvanti.
This article appeared in The Hindu dated April 4, 2015 under the Hidden Histories column.