VZCZCXRO3839
RR RUEHAST RUEHBI RUEHCI RUEHLH RUEHPW
DE RUEHNE #2356/01 2470124
ZNR UUUUU ZZH
R 030124Z SEP 08
FM AMEMBASSY NEW DELHI
TO RUEHC/SECSTATE WASHDC 3224
INFO RUCNCLS/ALL SOUTH AND CENTRAL ASIA COLLECTIVE
RUCPDOC/DEPT OF COMMERCE WASHDC
RHEBAAA/DEPT OF ENERGY WASHDC
RUEATRS/DEPT OF TREASURY WASHDC
RULSDMK/DEPT OF TRANSPORTATION WASHDC
RHMFIUU/FAA NATIONAL HQ WASHINGTON DC
RUEHRC/DEPT OF AGRICULTURE WASHDC

UNCLAS SECTION 01 OF 02 NEW DELHI 002356 
 
SIPDIS 
SENSITIVE 
 
STATE FOR SCA/INS AND EEB 
USDOC FOR ITA/MAC/OSA/LDROKER/ASTERN/KRUDD 
DEPT PASS TO USTR CLILIENFELD/AADLER/CHINCKLEY 
DEPT PASS TO TREASURY FOR OFFICE OF SOUTH ASIA MNUGENT 
TREASURY PASS TO FRB SAN FRANCISCO/TERESA CURRAN 
 
E.O. 12958: N/A 
TAGS: EAGR EAIR ECON ECPS EFIN EINV ENRG EPET ETRD BEXP
KIPR, KWMN, PHUM, SENV, IN 
 
SUBJECT: GOI DESIGNATES FINANCE SECRETARY SUBBARAO AS NEW RBI 
GOVERNOR 
 
¶1. (SBU)  Summary: The government announced on September 1 that 
Finance Secretary Dr. Duvvuri Subbarao will be the new governor of 
the Reserve Bank of India (RBI), replacing Y.V. Reddy, whose 
five-year tenure ends on September 5.  He has strong experience in 
public finance, including as Secretary at the Prime Minister's 
Economic Advisory Council and at the World Bank.  Subbarao takes 
charge at a time when inflation is running high, the economy is 
showing signs of slowing under tight monetary policy, and the rupee 
is weakening.  Subbarao is seen as a reformer, although some in 
Mumbai's financial community showed ambivalence about his 
appointment.  End Summary. 
 
BACKGROUND OF DR SUBBARAO 
---------------------- 
 
¶2. (SBU) The government has designated the current Finance Secretary 
Dr. Duvvuri Subbarao as the new Governor of the Reserve Bank of 
India (RBI), replacing Y.V. Reddy, whose five year term ends on 
September 5. Subbarao's appointment initially will be for a period 
of three years, but could be extended for another two years, as the 
RBI Act provides for appointment of a governor for up to five years. 
Rakesh Mohan, the present Deputy Governor who was a strong contender 
for the post, reportedly has been shortlisted for the job of India's 
Executive Director to the World Bank. 
 
¶3. (U) Subbarao, 59 years old, has been Finance Secretary since July 
2007, as well as Secretary at the Department of Economic Affairs 
since May 2007. Subbarao has extensive public finance policy 
experience and has held important posts in this area, including 
Secretary of the Prime Minister's Economic Advisory Council. During 
the years 1998-2004, he was a lead economist with the World Bank and 
worked on issues of public finance for the countries of Africa and 
East Asia.  He also worked as Joint Secretary in the Department of 
Economic Affairs during the first phase of reforms in the 1990s 
under Manmohan Singh as Finance Minister. As Finance Secretary for 
Andhra Pradesh, Subbarao initiated fiscal reforms in the state 
between the years 1983-1988. 
 
¶4. (U) An alumni of the prestigious Indian Institute of Technology 
of Kanpur, Subbarao received the top score in the Indian 
Administrative Service exam in 1972. He did his MS in Economics from 
Ohio State University in 1978 and was a Humphrey Fellow at the 
Massachusetts Institute of Technology during 1982-83. He holds a 
Ph.D degree in Economics from Andhra Pradesh University. 
 
¶5. (U) Subbarao's appointment comes at a time when the economic 
situation of the country is challenging, with moderating growth, 
16-year high inflation, and a weakening rupee in the wake of a 
growing trade deficit and a net outflow of portfolio investment. He 
has stated previously that RBI has to be at the forefront in 
inflation management. One of Subbarao's first tasks will be 
preparing the quarterly monetary policy review scheduled for the end 
of October.  He also takes the helm shortly before the RBI and the 
government begin to review the 2009 Banking Roadmap.  The Roadmap is 
expected to include consideration of several financial sector 
reforms, such as the opening of the banking sector to foreign banks, 
approval of fresh bank licenses, restructuring the RBI itself, and 
efforts to make India a hub of international financial services. 
Over the next three years, his biggest challenge will be to provide 
an environment and a regulatory framework that encourages and 
facilitates India's globalization. 
 
¶6. (SBU) In Mumbai, market players expressed ambivalence at the 
selection as Subbarao as the next RBI governor, largely because he 
is seen as the Finance Ministry's man from New Delhi.  In previous 
conversations about potential RBI governors, market players have 
consistently told Congenoffs that they would have preferred 
Ahluwalia as RBI governor, and would have accepted the current 
Deputy RBI Governor Rakesh Mohan, a well-known local entity; 
Subbarao came in a distant third.  Ashok Wadhya, CEO of Ambit 
Capital, told Congenoffs, "He's a true bureaucrat. I've worked with 
Subbarao in the Finance Ministry and his ability to make decisions 
is questionable.  While I disagreed with Reddy, at least he made 
decisions."  Tushar Poddar, Chief Economist of Goldman Sachs, told 
Congenoffs that while Subbarao has a wealth of experience and is 
known to be a good administrator, he is an outsider to RBI and will 
 
NEW DELHI 00002356  002 OF 002 
 
 
have to establish his credentials in the markets, in which he has 
little experience.  Poddar said that while Subbarao will hopefully 
be a better communicator than Reddy, he "won't hold his breath" on 
whether Subbarao will pick up the much-needed reform agenda.  Other 
interlocutors predicted that Subbarao would likely "drive the 
government's agenda," including focusing on inflation instead of 
growth. 
 
Comment 
------ 
 
¶7. (SBU) Dr. Subbarao has a strong reputation as an economist and 
brings a professional and balanced approach. The RBI's governor's 
job is the second most important job in India's financial hierarchy 
after the Finance Minister. Subbarao is reportedly a favorite of 
Finance Minister Chidambaram. His long-standing relationship with 
Prime Minister Singh might have also helped him in getting this 
position, possibly feeding into Mumbai's perception of Subbarao as 
Delhi's man. 
 
¶8.  (SBU) Since the outgoing RBI Governor, YV Reddy, was a slow and 
cautious liberalizer, maintaining tight constraints on foreign 
financial institutions, many wonder if Subbarao will be an 
improvement over his predecessor in this area.  While Embassy 
officers have found Finance Secretary Subbarao to be accessible, 
forthright and receptive to economic and financial issues of concern 
to the US, it is difficult to extrapolate that behavior to his new 
post as RBI Governor.  The arguably autonomous position of RBI 
Governor offers Subbarao a new professional and policy-making 
independence - and perhaps a new perspective as well.  Since central 
bank governors, like technocrats in Indian public service, are more 
criticized for failure than praised for success, however, the 
bureaucrat in him may find an aversion to risk (read reform).  It is 
useful to recall that Reddy was also heralded as a reformer, with an 
IAS career similar to Subbarao's, when Reddy took office five years 
ago.  Mission India will reach out to him in the early weeks of his 
tenure, but will also watch closely to see what kind of Governor 
Subbarao reveals himself to be.  End Comment. 
 
¶9. (U) Consulate Mumbai contributed to this cable. 
 
MULFORD