The central bank for India, the Reserve Bank, was started, in 1935 on April Fool’s Day; a persistent embarrassment, as a shareholders bank with a capital of Rs. 5 Crore. Independence brought two major problems: decontrol of supplies, which was felt decontrol would remove shortage by stimulating supply, and the question of what Britain owned India, sterling balance, 1.3 billion pounds, which the British decided not to honour, at least not fully.

    The year 1949 was a difficult moment, procurement prices had risen between 25-40 per cent, impacting the balance of payment because exports were declining. Another problem was the issue of giving Pakistan its share of the cash balance when the country was partitioned.

    Progressively hysterical, accusatory and demanding letters came from Pakistan. In the end, RBI withdrew from Pakistan before 1948; till then it had been agreed that it would act as Pakistan’s central....