Exclusive: The man who saved Indian markets from a free fall in 2008 says, he has only one regret from how he handled the entire crisis

Ten days into taking charge at the helm of affairs in the Reserve Bank of India, D Subbarao, was staring in the face of a financial crisis so big that it was threatening to take down countries as big and powerful as the US and UK. On the perfectly sunny morning of September 15, 2008, something very ominous happened. The Lehman Brothers declared bankruptcy, starting a domino effect that tore through stock markets of the world, bringing mammoth growth chugging economies to a grinding halt, even kick-starting the freefall that took the best financial minds a few weeks to stop.

Amidst all of this was India, the sole country that continued to grow, albeit at a slower pace. Even as Subbarao was still wrapping his head around the scary events unfolding around the globe, the first thought on his mind was to save India from going down, save its markets and the rock-solid financial institutions that were touted as the country’s nerve-centre.

D Subbarao in a free-wheeling chat with Business Insider on the occasion of the launch of his tell-all book, ‘Who Moved My Interest Rate?’, takes us back to that day, that moment when he walked into his office to brief his team of the ongoing crisis and the plan of action ahead, “There was anxiety and uncertainty amongst the team, but no despair. Never for a moment did any of us have any doubt. There was confidence in all of us that we could handle the situation. But what was concerning us was that whatever was happening was leaving the Central Banks of even the advanced economies bewildered and that feeling of uncertainty and bewilderment at the ongoing was transmitting even to us.”

Describing the days and weeks spent thereon, each moment was used devising plans and policies to cushion the Indian economy from the harsh effects of the literal economic meltdown, he says, “It was like being prepared for the unknown. We were constantly looking for appropriate policy stances. We not only had to react to the markets, but also react to policy measures being taken by the advanced nations at the forefront of this crisis.”

The toughest of the policy measures he ratified then was extending the Line of Credit for financial institutions that had already started showing signs of severe distress. “There was a difference of opinion within the RBI on how it needed to be done. How much support should one be giving to the housing finance companies, the NBFCs and so on. However, what everyone was clear about was that everything that needed to be done should be done to save India from the negative impact of what was global economic crisis.” But it was when the first few measures started bearing fruit that he, along with his team at the RBI, heaved small sighs of relief-small battles were being won, in an epic war against time.

READ ALSO: Exclusive: Raghuram Rajan vs Jaitley wasn’t a one-off, his predecessor Subbarao faced it too with then Finance Minister, P Chidambaram

What was even a bigger cause of concern was dealing with the Central Banks of the US and UK, who in order to protect their own financial institutions and economy from any further onslaught had turned severely protectionary. Billions of dollars worth of financial institution money (FII funs, commonly referred to as hot money, given the speed at which these funds can enter and exit) poured into the country.

Subbarao says, “Their monetary policies were having a trickle-down effect on our economy. All the money pushed into our country eroded at the stability factor of our economy, almost destabilising it. We had to constantly engage with them, trying to explain to them the adverse impact this was having on us. But it was tough, because their primary intention was to protect their own countries.” Which is also why, a host of laws, tightening the manner in which such financial institution led money could enter and exit Indian markets were brought into the fore, around the same time.

The single most challenging moment however came in 2012, when the Rupee began sliding overnight. At its lowest, the Rupee had touched Rs 73 to a Dollar. He says, “Battling the exchange rate crisis during the period of ‘taper tantrums’ was the toughest I had to deal with. For 15 years we hadn’t felt this threat on our currency. Since the exchange rate crisis in 1991, we had achieved this level of comfort where we almost forgot that a problematic situation such as this could be staring at us again. The pressure we felt therefore on the balance of payments front was the worst I had to deal with.”

That said, the man who literally saved the country from almost certain doom at that time has one regret in how he handled the crisis back then. “Now in hindsight, I believe I would have certainly handled my communication better. I would have ensured the way I spoke to the Banks and financial institutions was more aggressive, giving them the confidence we felt inherently.” He also wishes that data, back then could have been sourced in real-time ensuring some of the policy measures that were taken then could have been quicker and therefore faster in bringing about the desired impact. That’s a lot coming from the man who was hailed globally for maintaining India’s fiscal prudence, and ensuring that the ship didn’t sink.