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Nirmalaji And Why I Quit The Government

January 15, 2024 09:24 IST

She said I treated her like a bachchi.
At another moment, she said I had gone to various people and 'bitched' about her.
She also threatened to bring the entire matter to the PM's notice.
A revealing excerpt from Subhash Chandra Garg's We Also Make Policy: An Insider's Account of How the Finance Ministry Functions.

IMAGE: Then finance secretary Subhash Chandra Garg, extreme right, with Finance Minister Nirmala Sitharaman arrives to present the Union Budget in Parliament in 2019. Photograph: ANI Photo

It is a tradition for the finance secretary to go to the finance minister's chamber a few minutes before the pre-Budget consultations actually begin. I went to her chamber, but was told to proceed directly to the conference room as she would join us there.

It was somewhat unusual but I did not pay serious attention to it at the time. As there was only a limited time available for these consultations, we began listening to the experts as she was running late.

She came in about an hour later. She looked rather stiff when talking to me, with an unsmiling, grim face. I requested the principal speakers to highlight their suggestions again in brief, which they did. The meeting was moving towards closure. At that stage, she discussed some of the suggestions with the participants.

When I was making my concluding remarks, I mentioned that all their suggestions had been duly noted. To assure the participants that the government valued their suggestions, I underlined that while we could not discuss the merits of their proposals, following the tradition, all their views and suggestions would be put up for the consideration of the finance minister for appropriate orders, after due examination.

I don't think I said anything objectionable. However, she reacted sternly when I finished my closing remarks, saying, 'I will abide by what the finance secretary says, especially a finance secretary who is much older than me in the finance ministry, and not discuss the suggestions.'

Her remarks were certainly not in order, but I said nothing. I simply smiled.

That said, she did not close the meeting. One secretary and another expert, believing that the finance minister was quite receptive and interested in their ideas, initiated a discussion on two more issues. I remained quiet during this discussion.

While listening to them and interacting with them, she suddenly shot back at me without any rhyme and reason, saying: 'What do you think, I cannot violate you? I would.'

This was the proverbial last straw on the camel's back. It was very clear that she was deeply frustrated with me over something, but I did not know exactly what it was. I remained quiet.

I went to her room immediately after this meeting to clear the air before the next meeting was to begin in the afternoon. She was livid. I offered to reshape the process of consultation as it pleased her. I also apologized if anything I had done had caused any misunderstanding.

She was relentless and besides herself. She said, at one stage, that I treated her like a bachchi. At another moment, she said that I had gone to various people and 'bitched' about her. Both these allegations were completely false. She also threatened to bring the entire matter to the PM's notice.

Strangely, despite her diatribe, she maintained that the pre-Budget consultations must be conducted in the way I wanted, adding that she would not even open her mouth in the consultation meetings thereafter. I don't know what had got into her. It was clear, though, that we had a serious problem and that our functional relationship had broken.

I was distraught. The Budget was drawing very close. I had to see it through. With a cooler head, I decided to ignore everything that had taken place and carry on without any further breakdown to ensure the Budget went off smoothly.

The remaining pre-Budget consultations were completed more as a formality that year than probably at any other time in the past. She did not attend some meetings and came very late for some. Whenever she did come, she mostly sat through the meetings with a glum face.

IMAGE: Nirmala Sitharaman and Subhash Chandra Garg, left, at the Halwa ceremony to mark the commencement of the Budget printing process for the Union Budget 2019-20, in New Delhi. Photograph: ANI Photo

The Relationship Keeps Worsening

On 15 June 2019, Prime Minister Modi called a full meeting of the NITI Aayog at Rashtrapati Bhavan's conference hall. I attended as finance secretary.

Before the meeting, in the reception hall, Additional Principal Secretary P K Mishra took me aside and said, 'Subhash, you don't keep any tension, but you cause a lot of tension to others.' I understood that he was referring to Finance Minister Nirmala Sitharaman.

Three days earlier after a meeting in the PMO, Nripendra Misra, principal secretary to the PM, had asked me to come to his chamber. He wanted to know whether everything was going on well with the finance minister. Ignoring the import of his question, I replied that I was fully focused only on completing the Budget exercise.

When I asked him the reason for his question, he informed me that Injeti Srinivas, secretary, corporate affairs, had complained to him about the way the finance minister was dealing with him and his department.

I told him that there were a few issues but that I would come and explain them only after the Budget. I also indicated that I would offer possible solutions to remedy the situation after the Budget.

P K Mishra mentioned that the finance minister had met Prime Minister Modi twice or thrice in the last few days and had been complaining bitterly against me.

Looking concerned, P K Mishra noted that she was in great tension. He advised that I should do everything to contain the situation. I told him that I did have some problems with her where she had behaved in a very awkward manner.

However, I assured him that I was completely focused on seeing the Budget through. I informed him that I hadn't complained to anyone or even discussed the matter with anyone. I mentioned that something would definitely have to be done, after the Budget.

IMAGE: Nirmala Sitharaman, then minister of state for finance Anurag Thakur, left, and Subhash Chandra Garg addresses a press conference after presenting the Union Budget in Parliament. Photograph: R Raveendran/ANI Photo

A parallel set of events during the Budget process generated more tension between us.

Nripendra Misra was very keen that a financial package be announced for NBFCs. This package was to include two kinds of measures: first, giving further regulatory and resolution jurisdiction over NBFCs to RBI; and, second, announcing a special window to provide them liquidity support.

Secretary, DFS (department of financial services), Rajiv Kumar proposed a package of amendments in the RBI Act, including conferring regulatory and resolution jurisdiction to RBI, to be included in the Finance Bill.

I was opposed to vesting resolution authority in RBI and in favour of creating a resolution mechanism on the lines of the Financial Resolution and Deposit Insurance Bill (FRDI). Besides this principal issue, I found certain other weaknesses in the package, including the unintentional insertion of a bail-in clause and excessive penalty provisions.

During my absence from Delhi to attend the G-20 meeting, the draft amendments proposed by DFS got approved and had been vetted by the legislative department.

I wrote a letter to the secretary, DFS, on 30 June asking for three changes to be made in the material that he had got approved for the Finance Bill. He agreed with two of these proposed changes, but disagreed with excluding conferring of resolution authority on RBI.

He routed the file through me, recording his views on my letter. I recorded my reasons for not conferring this authority on RBI and submitted the file to the finance minister.

Finance Minister Nirmala Sitharaman found it difficult to clear any file where differing views were recorded. She wanted every file to be completely clean before she signed.

In my short time with her, I could not find a single file where she recorded her views or decided to take "a stand". She would either sign it, return it unsigned or keep it pending.

In view of the urgency to finalize the Finance Bill, she called Rajiv Kumar and I on the morning of 2 July for a discussion. I explained my reasons.

I did not think she understood the difference between regulation and resolution clearly, but she seemed persuaded to agree with my opinion. She asked me to record some background and additional reasons for my line of suggestion and resubmit the file. I did so.

IMAGE: Nirmala Sitharaman with RBI Governor Shaktikanta Das and Subhash Chandra Garg during the post Budget meeting of the RBI's central board in New Delhi. Photograph: R Raveendran/ANI Photo

Rajiv brought up the matter again at the speech-reading session with the PM. There, Nripendra Misra supported Rajiv. The finance minister only commented that I had recorded a long note opposing Rajiv's proposal. The PM ordered that the view expressed by Nripendra Misra and Rajiv Kumar be accepted.

The next day, the file was returned to my office from the finance minister's office with the oral instruction: 'FS knows what is to be done'.

I sent the file to the secretary, DFS, who submitted the same back, noting on a fresh page that the proposal of DFS might be approved. I signed it and sent it to the finance minister in view of the specific decision taken the previous day.

However, Nirmala Sitharaman had different ideas. She would not sign the file with the earlier notes remaining on it. Her office conveyed this clearly to Rajiv.

Rajiv told me the note sheets recorded earlier would have to be taken out, destroyed and replaced with new note sheets with the same dates and numbers. Though I had never allowed such a thing in my life, I acquiesced only to ensure that the Budget process went through.

I was determined not to be party to something like this ever again. The second part of the package for NBFCs was further fraught with risk.

Somebody had suggested to Rajiv that the government should provide a partial risk guarantee to encourage banks to buy highly rated pooled assets of the NBFCs. SBI had suggested this guarantee to cover the first 5 per cent of loss.

I did not favour this idea as the concept of pooled assets has the potential to be misused for toxic assets, as happened in the US in the subprime crisis.

Further, I felt that if the guaranteeing of bank loans began, it was unlikely to be confined to six months as proposed and would probably perpetuate for long. I believed that it would make banks stop their normal lending to NBFCs, as this mode was less risky and that there would be a flight to such asset-based financing.

My considered view was that the government had no business to create a moral hazard by loosening the credit appraisal and risk assessment of banks by offering such comforts.

A day earlier, the finance minister had disfavoured the idea of including this announcement in the Budget speech on the grounds that the PM had not asked her to do it.

However, on 4 July, when Nripendra Misra spoke to her about it, she not only agreed to include it but also raised the extent of coverage to 10 per cent, instead of Rajiv's original proposal of 5 per cent.

The inclusion of this proposal in the Budget speech convinced me that there were likely to be many compromises in the development of the financial sector and banking, which were, in my judgement, anti-reform.

These developments convinced me that my time in the government was over.

Excerpted from We Also Make Policy: An Insider's Account of How the Finance Ministry Functions by Subhash Chandra Garg, with the kind permission of the publishers, HarperCollins India.

Feature Presentation: Aslam Hunani/