Interviews

In this interview, Yaga Venugopal (YV) Reddy narrates the impressive arc of his career, from his beginnings in the Indian Civil Service in the late 1960s, to his tenure as the governor of the Reserve Bank of India (RBI) from 2003 to 2008. In doing so, he provides an insightful overview of not only his own career, but the evolution of Indian fiscal and economic policy over more than four decades. He describes the origin, intention, and consequences of Indira Gandhi’s nationalization of Indian banks in [YEAR], as well as the rise of development planning, and the long-term impact that these policies and decisions had on Indian economic growth.

Reddy talks in detail about the Balance of Payments Crisis that hit India in 1991, offering an unusual perspective on the origins of the crisis. In the 1980s, Reddy was working in the state government of Andhra Pradesh alongside Chief Minister N. T. Rama Rao. From this vantage point, Reddy could see that the current national economic model was not working. Although there was broad consensus among top policy makers that change needed to be made, Reddy explains that, “They recommended marginal change, not fundamental change… [and] this marginal change was not enough. The situation was unsustainable.” This was the state of affairs going into the 1990s, when Reddy began working for the government of India. Again, he describes political weakness and inaction as key triggers of the crisis. “We were very vulnerable,” he recalls, because “we knew that we didn’t have proper political leadership. Indeed, from 1990-93, India had three prime ministers, three finance secretaries, and three chief economic advisors. There was consensus that change needed to be made, but no decisive leadership. This experience impressed upon Reddy the intricate relationship between economic and politics, and had a profound impact on his later career. In the interview, Reddy reflects that these early experiences may have conditioned him to be more conservative in his economic risk management than he otherwise might have been.

When Reddy assumed the post of governor of the RBI in 2003, he describes his agenda with the slogan, “I believe in continuity, with change as appropriate.” This was “vague enough,” he explains, that he could maintain his overall conservative positions, but still retain flexibility to deal with new and challenging circumstances. He goes on to describe some of the major initiatives undertook as governor, explaining his strategies for reforming regulation for both public and private sector banks, constraining credit, and handling the atypical problem of having a surplus of foreign exchange. Reddy also talks about his efforts to promote financial inclusion through an expanded payment system and greater access to banking technologies like the ATM, which would allow ordinary people the ability to receive, transfer, and transact more easily.

In the interview, he reflects on the challenges he faced pursuing these different objectives, and credits the “excellent leadership team” around him for his success as he charted what he describes as “unfamiliar circumstances.” Indeed, throughout the interview, Reddy emphasizes the fact that dialogue and a productive, working relationship with the government of India were key to his success. As Reddy explains, “though [the political leadership] did not [always] agree with me, they were prepared to trust and give me some leeway.”

This relationship was critical to Reddy’s successful handling of the 2007-8 global financial crisis, for which he is known around the world. While many were moving away from what Reddy terms “traditional” policies, Reddy stood his ground and maintained a conservative agenda with the support of the Indian government. Thus, he explains, his success wasn’t due to new or innovative policy to avoid crisis, but rather to a keen awareness of mounting economic risk. “The type of actions we took,” he says, “were nothing new.” He admits that he wasn’t even sure that there would be a financial crisis at all. But, as he explains, “I knew that we [India] could not afford any chances… [so] I was being a little more careful.” In the interview, Reddy elaborates on the various policy decisions he took at this time, including controlling Non-Banking Financial Companies (NBFCs), increasing regulatory oversight for systemically important financial institutions (SIFIs), increasing margins on lending to make it more expensive—particularly with regards to housing markets, and pushing for consolidation and improved governance of private sector banks.

Reddy concludes the interview by reflecting on the changing nature of the relationship between the RBI and the government of India over time.

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