S. Venkitaramanan, an Indian Administrative Service cadre bureaucrat and a former governor of the Reserve Bank of India, died this morning due to illness. He was 92.
While he was known for quick decision making, he had managed many crises skilfully during his more than three decades of service in the government and as a central banker.
It was during his tenure as the Governor of the RBI between Dec. 1990 and Dec. 1992, that the country was facing its worst economic crisis that led to sweeping reforms both at the governmental level as well as the financial system.
The country which had just pledged gold to save itself from default was facing an exchange rate crisis and it was under his leadership in the RBI that the central bank devalued the currency to make Indian exports competitive and reduce the import burden.
“The situation had deteriorated to a point that it had become inevitable,” writes C. Rangarajan who succeeded Venkitaramanan as Governor. “Discussions centred on the extent of the adjustment and the mode. After the political clearance, the signal was given to Governor Venkitaramanan and me to go ahead.”
The devaluation of the currency led to the readjustment of the external imbalances. It was followed by a series of reforms including the liberalisation of the exchange rate mechanism christened Liberalised Exchange Rate Management Systems or LERMS.
Most in the government did not even want to think of a default, but Governor Venkitaramanan had ordered `that technical work on disaster management be undertaken by the RBI in secret, so that we were not unprepared if matters went out of control,’ wrote Dr. Y.V. Reddy in his memoirs.
When the debate about current account convertibility was on, Venkitaramanan was on the side of caution in permitting import of capital goods under the head as it could lead to a sudden spike in the demand for US dollar.
Some of the baby steps in reforming the money markets were taken during his time that began with the introduction of money market mutual funds by banks and widened the participation by permitting IDBI and NABARD. For the first time 364 day Treasury Bills were sold in auctions without the RBI support.
India’s biggest stock market scandal erupted in 1992 when Venkitaramanan was heading the central bank. Stock broker Harshan Mehta and others were accused of manipulating the government bond market and siphoning off funds from banks to rig stock prices.
Many top bankers were arrested and charged with wrongdoing and that led to the central bank getting into a shell in reforming the bond market for more than a decade.
That possibly led to a bit of differences between Venkitaramanan and his senior bureaucrat colleague G.V. Ramakrishna who was heading the Securities and Exchange Board of India at that time. While the two were reluctant to meet, the then member on the SEBI board Reddy initiated a committee under the Governor’s chairmanship to discuss financial markets’ matters.
“In my view, if there is one person who showed extraordinary leadership in managing the balance of payments crisis, it was Venkitaramanan, as governor, RBI,” Reddy had said.