Resignation of the First Governor of RBI

This is in response to the criticisms of A Viswanathan (EPW, November 25, 2000) and comments of S L N Simha (EPW, May 5, 2001) on my article ‘Central Bank and Government: An Untold Story from RBI’s Early History’ (EPW, August 19, 2000).

Viswanathan asserts: I have given a highly dramatised version of the episode as “an intra-organisational issue rather than a confrontation between two individuals occupying high positions;” I have strived unsuccessfully to introduce the autonomy doctrine and thereby invested “the exit of the governor with a halo of martyrdom”. I would only argue that the Grigg vs Smith episode, although it had strong personal and temperamental overtones, arose primarily out of their respective official positions rather like the later controversy between the then finance minister, T T Krishnamachari, and Governor Rama Rau leading to Rau’s resignation. In his letter of resignation to Nehru, Rama Rau was explicit that, while he was prepared to overlook the minister’s personal abuse, he could not brook his public criticism of the RBI. Historically, central bank-government conflicts, insofar as they are made public, have always involved the Governor (qua central bank), and the finance minister (qua government) in their representative and not personal capacities. A telling example of this is the historic conflict in Canada (1961) between Governor John Coyne and the finance minister, Donald Fleming, which led to an alarming depreciation of the Canadian dollar and subsequent resignation of Coyne. Although, neither Grigg nor Smith thought it fit to involve their respective collegiate entities, the Executive Council (GoI) and the Board of Directors (RBI), in their prolonged conflict, this does not transform it into a personal feud.