Chakravarti Rangarajan took over the stewardship of India's central bank in December 1992, at a time when the credibility of the country's financial system had come under a cloud following the securities scam. When he took over as governor, Rangarajan had said that the major issues facing the central bank were putting the Indian financial system back on the rails, restoring the credibility of the banking system, and ensuring the viability of the financial institutions. It is to Rangarajan's credit that he has not only been able to do full justice to all these objectives, but has also carried forward the process of financial liberalisation. It is appropriate that Rangarajan bids farewell to the Reserve Bank immediately after starting off the second phase of financial reform, by a series of measures aimed at granting autonomy to public sector banks.

Rangarajan's stint as governor of the RBI saw far-reaching changes in monetary and credit policy. Some of the most important were the deregulation of the financial sector, and substantial reduction of the pre-emption of bank funds by the government. There has been a serious attempt to make monetary policy an independent policy instrument by freeing it from its traditional role as second fiddle to fiscal policy. This has been done by the replacement of ad hoc bills, which resulted in automatic monetisation, by ways and means advances. The last two credit policies have seen attempts by the RBI to integrate the fragmented Indian financial markets. Banks in India are now free to determine their own deposit rates, as well as most of their lending rates. Several steps towards capital account convertibility have been taken. The money and government securities market have been deepened and new players, such as primary dealers, have made their appearance. The banking system has emerged substantially stronger, with most banks having achieved the capital adequacy norms, and provisions having been made for a large chunk of non-performing assets. All these are major achievements, and much more has been achieved in the last five years than in the previous fifty. But much yet remains to be done -- the continuation of the second phase of financial reform will mean tough decisions, especially on the weaker banks and on NBFCs. Bimal Jalan's tenure will most probably see capital account convertibility, and his reformist credentials should ensure that the unfinished work of financial liberalisation continues.

Copyright © 1997 Indian Express Newspapers (Bombay) Ltd.