C. Rangarajan: Ending Automatic Monetisation

How C. Rangarajan as RBI Governor ended the automatic financing of government deficits by printing money, and chaired committees on poverty and sugar.

C. Rangarajan (born 1932) is a leading monetary economist.

RBI Governor

Governor of the RBI from 1992 to 1997.

Ending ad hoc treasury bills

Earlier, the government financed deficits by issuing ad hoc treasury bills to the RBI, effectively printing money.
Rangarajan pushed agreements in 1994 and 1997 to phase this out by 1997.
This gave the RBI more control over money supply and inflation.

Other roles

Governor of Andhra Pradesh.
Chairman of the Twelfth Finance Commission.
Chairman of the PM’s Economic Advisory Council.

Committees

Rangarajan Committee on poverty (2014) proposed a new poverty line.
Rangarajan Committee on sugar (2012) recommended revenue sharing between mills and farmers.

Legacy

He strengthened the RBI’s independence from fiscal pressures.

The printing press

Before reforms, when the government ran short of money, it could issue bills to the RBI, creating new money that fuelled inflation.

Thinking central banks always controlled money supply fully

The RBI gained control only after automatic monetisation ended.

Key takeaways

Rangarajan was RBI Governor from 1992 to 1997.
He ended automatic monetisation of deficits by 1997.
He chaired poverty and sugar committees.
He strengthened RBI independence.