A day after Union finance secretary Subhash Chandra Garg was transferred to the power ministry in a sudden bureaucratic shuffle, he is reported to have sought voluntary retirement from government service. The power ministry is considered to have a lower profile than the finance ministry and Garg’s transfer was widely seen as an effective demotion.
Garg, described as “one of the most powerful finance secretaries in recent times”, had led the Modi government’s efforts to get a larger share of the RBI’s reserves, even if it required threatening to force the reserve bank’s hand.
Garg is a 1983 batch Rajasthan cadre officer, and had taken charge as finance secretary in March 2019 after the retirement of Hasmukh Adhia. Prior to that, he was Economic Affairs Secretary since July 2017, having succeeded Shaktikanta Das, the current RBI Governor.
Reasons Behind Garg’s Transfer
So what explains Garg’s abrupt transfer, which led to his subsequent decision to seek voluntary retirement?
Garg’s strong dissent note to the Bimal Jalan Committee on RBI’s Economic Capital Framework, his repeated standoffs with RBI and SEBI, and his role in pushing for external currency sovereign bonds have all been attributed as resulting in his transfer.
Business Standard quoted a senior government official as saying, “Garg had taken on Urjit Patel and won in a way, he took on Viral Acharya. He has taken on the Jalan panel and SEBI.”
A Tenure Marked by Run-Ins With RBI and SEBI
- SEBI standoff: Ajay Tyagi, Chairperson of the Securities and Exchange Board of India (SEBI), had written to the finance ministry earlier in July, requesting a review of the Budget proposal which mandated that SEBI transfer 75% of its surplus funds to the Centre. The proposal was said to be Garg’s idea, and it had not gone down well with the market regulator.
- Bimal Jalan Committee dissent note: This committee was constituted by the RBI in December 2018 under former RBI governor Bimal Jalan. Its mandate was to review the economic capital framework of the Reserve Bank. Garg wanted the transfer of the surplus at one go and dissented with the other members who were pushing for instalments. He wrote a strongly worded dissent note, differing from the recommendations of the panel. Some of the other members of the Committee had reportedly sought to convince Garg to tone down his dissent note. He however, did not budge and even skipped a meeting of the committee, purportedly to express his ire. The panel is expected to submit its report to the RBI soon, including Garg’s strong note of disagreement.
- The government’s controversial letters to the RBI: Three letters from the Modi government to the RBI in 2018 controversially referred to Section 7 of the RBI Act which pertained to ways in which the Centre could force the RBI’s hand. The letters are said to have been written by Garg. Of these, the one that raised the loudest hue and cry pertained to the transfer of reserves. The other two letters were regarding concessions for power sector non-performing assets and on easing of the Prompt Corrective Action framework. The argument over the RBI’s reserves led to a worsening of relations between the Centre and the central bank, especially with its then governor, Urjit Patel, being extremely critical of the government’s demand and their threat to use Section 7.
- Tiff with the then RBI Deputy Governor Viral Acharya: In October 2018, then RBI Deputy Governor Viral Acharya, known for his outspoken ways, delivered a speech on why the RBI should be given greater independence. He even went on to say that governments that did not respect their central bank's independence would sooner or later incur the wrath of financial markets. In what was a thinly veiled jibe at the RBI Deputy Governor, Garg posted the following tweet a week later.
Garg was reportedly later reprimanded by the then finance minister Arun Jaitley and the then finance secretary Hasmukh Adhia for this particular tweet.
The Budget Proposals
Several aspects of the latest Union Budget are said to have Garg’s imprint, especially the decision to borrow in overseas markets, reduce the fiscal deficit as a percentage of GDP, and resort to off-Budget borrowing to ensure the same.
Interestingly, Garg’s transfer took place just a day after the Union Budget was passed by Parliament, and less than three weeks after it had been presented in the Lok Sabha.
The most controversial decision in the Budget announcement was that the government would opt for external currency sovereign bonds. Several economists, including former RBI governors YV Reddy, Raghuram Rajan, C Rangarajan, and multiple members of PM's Economic Advisory Council including Bibek Debroy, Rathin Roy and Shamika Ravi reportedly criticised the move.
In a surprise instance of a senior Sangh functionary mocking a high-level bureaucrat, Ashwani Mahajan, the National Co-convenor of the RSS-affiliated Swadeshi Jagaran Manch, tweeted that Garg’s borrowing proposal could be the reason for his transfer and in a comment laced with sarcasm, called it a “wonderful idea”.
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