In Conversation with Dr. Y Venugopal Reddy
Written on January 13th, 2020 by {"login"=>"jcbitshyd", "email"=>"journal@hyderabad.bits-pilani.ac.in", "display_name"=>"Journal Club, BPHC", "first_name"=>"", "last_name"=>""}Y Venugopal Reddy, ex-RBI Governor and IAS officer, visited BITS Hyderabad and addressed students during ATMOS 2019, the tehnical fest of the campus. We, at Journal Club, caught up with Dr. Y V Reddy after the talk to find out more about his career.
Question: How would you compare other colleges you've taught in with your very own college days?
Answer: I was a student of Vivekananda College, Madras but I learned more about economics after I graduated. I have realised that the best way of learning a subject is by teaching it. So only after I became a research scholar and later a teacher, I got into the nitty-gritty of the subject. My main focus during my college days was just to pass the exams. Learning economics for me came after passing the exams. I suppose this is true for many people unless you are in a very distinguished institute like BITS Pilani.
Q: How would you compare working in the government to working in the RBI?
A: I enjoyed working in the RBI in terms of independence. In RBI, the remit is limited. You have a lot of like-minded people working under the umbrella of finance and you are assigned specific responsibilities. On the other hand, working for the government is lot more complicated. You're dealing with people and politicians, and there are a variety of jobs to do. One day I'm taking care of law and order, the second day the army and the third day I'm selling kerosene oil and the fourth day something else entirely. But it does require a highly developed skillset. I feel that working for the government helped me in understanding and solving complex problems. I picked up many technical skills during my time in RBI, and it provided me with a scientific basis of some kind. In the art of policy-making, I always had an advantage as I was exposed to the society, government, market far more than I would have been only in the RBI. I was lucky enough to take advantage of my government experience in making my judgments in the RBI. But at the same time, I also used my technical skills in RBI, which requires a deeper skill set compared to other developing countries. Each phase contributed to my life, and I learned a lot along the way.
Q: Among the many great minds you had an opportunity to work with, a prominent personality in Indian politics is former PM, Manmohan Singh. How would you describe the man, and what qualities in him do you think garner him respect from both sides of the aisle?
A: I started working with Manmohan Singh way back in 1977 when he was the Secretary of Economic Affairs. He chose me to be his Deputy Secretary. I always thought of him as my guru. He took me under his wing, and I worked under him in several capacities. He's soft-spoken and doesn't display his scholarship. His presence is comforting, and he's a great listener. The beauty of it is, apart from his integrity which is of the highest order, whenever he asks questions, you don't know why he's doing so. Sometimes he asks me questions about what he doesn't know or how to reply to his critics. He tries to warn me against taking a specific path. He has varying motives behind all that he does. He provokes you and doesn't dictate your action. I found it very fascinating to work with him. Every distinguished colleague of mine with whom I got a chance to work with had their own qualities. Dr. Rangarajan was a typical teacher and would explain everything and had a bright vision for the future. Dr. Jalan is a great strategist. Mr Jaswant Singh was a prominent statesman, and Vajpayee had his polite way of telling one what they didn't know. I found something extraordinary in each of these leaders that I could learn from and adapt to my life.
Q: When the government proposed the idea of demonetization to the RBI, former governor Raghuram Rajan said the RBI had done an extensive pro-con analysis and submitted a few alternatives to the government. If you were the RBI governor during demonetization, what steps would you have taken?
A: Someone asked me this question after demonetization. I answered it and got into trouble because of that. The answer is relatively simple though. I would have consulted the government against the implementation of the decision. If the government still wanted to go ahead with it, I would have gotten myself admitted into a hospital and quietly left the job.
Q: It is a known fact that an RBI governor's words are taken with high importance and analysed thoroughly by various stakeholders in the market. In this context, we'd like to ask you two questions:
i) Could you tell us an instance where the market got the wrong message from a speech of yours?
Answer – When I was governor I always used to be advised to be very careful because if I said good morning, then the market starts wondering if the morning before that was bad or the evening before was bad. (chuckles) It's that problematic at times. So the trick that I generally used was relatively simple – I didn't give any particular message. A journalist once asked me why I didn't say anything coherent and that my words were very confusing. I was like exactly, I am confused and I'm sharing my confusion with you very faithfully. There are two approaches to central banking communication. One is forward guidance and the other is just sharing of information. I believed that we shouldn't give forward guidance but instead can give a hint to the market. You should also be careful about how they'll react. There's one case that I recall where I explained everything and then was asked why I didn't take any action. I replied that it was a thoughtful inaction. I thought about it and decided not to act. Sometimes you have to be a little vague, and it's always better to not be very specific. You have to realise that you are interacting with the market and they still wouldn't understand the message you mean to portray. There is always some misunderstanding.
ii) What is your opinion on the market's overreaction to the news? Has it gotten better over time? If not, how do you think it can be rectified?
A: I don't think that I can make a judgement on the behaviour of the market. What I can say is that credibility is the most important. It's not always about what you said on a particular occasion but your track record. I'll give you one instance, where I was asked if the exchange rate was appropriate. I said, I don't know. I was asked how I could intervene in the market if I don't know the correct exchange rate. I said that I can't define God, but I can recognise a devil. If I see a devil, I will fight it. So you will have to tell them that you're vague because it's a complicated situation, as the moment you offer an opinion, then you are caught. The market becomes more accepting of your opinion once you establish your credibility through sound decisions. From then on, they will tend to listen carefully to your speeches and statements. But if you trip once or twice and don't back up your words with suitable action or evidence, then your credibility is taken away from you. So ultimately the most important thing for a central bank to be effective is credibility – That you will do as you say and say what you mean and trust – that you'll do whatever is right for the system.
Question - Having exposure to a lot of international institutions, how do you think the Indian academic institutions are different from their foreign counterparts?
A: We have among the best academic institutions in the world and also a large pool of not so distinguished institutions. An excellent analogy to the current state of Indian education is that there is a Mercedes Benz and a bullock cart on the same road.
Question - What is your advice for students who aspire to be like you one day? Any advice on how they should spend their time?
A: My advice is to not be like me. The world today is so different from my college days. To be happy and prosperous, you would have to be very different from me. So I would advise you to be yourself, be wary of the ever-changing world and be very nimble to survive.
Interviewed by Ishita Gupta and Deepanshu Mody. Edited by Shanmukh Kali Prasad.