PAC setback for RBI governor Subbarao TNN | Apr 29, 2011, 04.05am IST

NEW DELHI: Questions over Duvurri Subbarao's role in the 2G spectrum scam could be a setback to the former IAS officer's chances of getting a second term in the Reserve Bank of India in September.

In fact, the names of economic affairs secretary R Gopalan and chief economic advisor Kaushik Basu have already started doing the rounds as a possible successor. Both joined the finance ministry afterPranab Mukherjee moved into North Block in late 2008.

Apart from having been in charge of the financial sector department in the ministry, Gopalan was a public sector bank employee before joining the IAS. Basu is an economist who is on leave from Cornell University.

When Subbarao moved to Mumbai in September 2008, he was given a three-year term and he was widely expected to get a two-year extension. Yaga Venugopal Reddy, Subbarao's predecessor on Mint Road, had served a five-year term while Bimal Jalan's three-year term had been extended though he decided to resign midway to become a Rajya Sabha member.

The draft PAC report, which was not accepted by all the committee members, had said Subbarao should be asked to explain why he did not raise questions over telecom ministry's move to ignore finance ministry's recommendations.

Officials said there was no formal proposal to either extend the present governor's tenure or find a replacement. A final call would be taken by Prime Minister Manmohan Singh and finance minister Pranab Mukherjee closer to the expiry of Subbarao's term.

In 2008, in a first, a committee headed by P Chidambaram, then finance minister, with C Rangarajan, chairman of the Prime Minister's economic advisory council, as a member shortlisted possible candidates and zeroed in on Subbarao.

Though Subbarao is seen to have handled the impact of the global financial crisis well, he has publicly opposed the government on at least two issues. The first area of difference was the establishment of a joint committee of regulators for dispute resolution that is headed by the finance minister. Similarly, he was severely critical of the government's decision to set up the Financial Stability & Development Council, which is again headed by the finance minister.

On both occasions, however, he was placated by the government after signals from the North Block that RBI governor is the first among equals when it comes to financial sector regulation.

After Chidambaram's departure from the finance ministry, the government has stayed away from reappointments in regulatory agencies with former Sebi chairman C B Bhave and former RBI deputy governor Usha Thorat being examples. At least two senior finance ministry officials - revenue secretary P V Bhide and finance secretary Ashok Chawla - were not given extensions and were allowed to retire just a month before the budget was presented.

In case of banks and financial institutions, too, the government has decided that any reappointment will take place only after the incumbent's performance is reviewed by a specially-appointed panel.
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