RAJAN & HIS LEGACY
Raghuram Rajan was the poster boy of Indian middle class and a voice of the contrarians. His recent book “I do what I do” was, therefore,eagerly awaited; largely to get his insight on government’s move to demonetize in November, 2016. Rajan has been candid enough to admit that he had given his advice verbally. He was of the view the “short run economic cost would outweigh the benefits. Potentially better alternatives are available to achieve the main goals of curbing black money”. It has indeed destabilized the monetary fabric of the informal sector, constituting small traders, workers, and farmers, who depend on cash for bulk of their economic transaction. The political bonanza of DeMon cannot obfuscate the severe dent, it has made of the hapless and the unorganized. One is not so sure, if the present government would have had such a smooth sailing with DeMon if Rajan was around as the RBI Governor!
Rajan’s present book is a takeoff on his two outstanding books “Fault Line” (2011), which foresaw the likelihood of global economic recession and “Saving Capitalism from the Capitalists” (2014) which underscored the need to strengthen the banking system further. This book is essentially is a collection of his speeches given at different for a, without really revealing what triggered his exit from the RBI,and not getting a second term, which he eminently deserved.
The legacy of Rajan is built essentially on three major pillars. Firstly, he ensured that inflation targeting with an agreed benchmark on CPI must be the long term goal of both the RBI& the government. In this, he changed governmental policy from“wholesale price index” where food items had a weightage of 26%,with Consumer Price Index, where food items constitute 48% of the price index. The CPI is more reflective of the concerns of the common man and the policy initiatives are not way laid by corporate interest with industrial indices only. Secondly he has highlighted how big corporates get away with defaults through dilatory by engaging highly paid lawyers while small borrowers are generally compliant. Rajan did not endear himself to the big corporate honchos when he writes “a willful defaulter should not be lionized as a caption of industry but justly chastised as a freeloader on the hardworking people of this country”. Quite possibly his exit was hastened due to his adroit follow up on loan recovery from the big sharks. We now have a Bankruptcy Code in place (2016) and the Reserve Bank of India is also in the process of settling the toxic accounts of many banks.
Rajan is a great admirer of Francis Fukuyama who underlined the importance of liberal democracy which is built on three pillars viz. strong government, rule of law and democratic accountability. Fukuyama had observed in his book “Political Order and Political Decay” that the capacity of the government to deliver good governance and public services is extremely unsatisfactory in India. Rajan agrees with this perception strongly.
He is also a great advocate of financial inclusion and highlights how world over the poor, the small and the remote are excluded from the purview of shared prosperity and access to basic financial services. While complimenting the present government for initiatives like Jan Dhan and Mudra Bank initiatives,he underscores the challenges to financial inclusion as information, incentives and transaction cost. He makes a powerful plea that the banker must reach out to people, even if it is unprofitable; as democracy, inclusion and prosperity are co-terminus.
Raghuram got into severe flak from discerning observers for his comment that India should look for “Make for India” against the popular slogan “Make in India”. He explains how his suggestion for Make for India is not in conflict with the Make in India initiative; but to make our policy makers wary of the pitfall of export led growth strategy of China. For him, what is most important is bolstering the consumption capability of Indians, fostering a unified market through GST and improving human capital through substantial investment in education, health and sanitation.
In Fault Lines, which made him the prophet of global economic gloom, Raghuram referred to “fascism” as a scenario where “nationalism is coupled with great faith in the power of the government to enact domestic bargain between labour and capital”. He had also observed by lack of transparency and stifling competition encourages crony capitalism which is harmful to free enterprise, opportunity and economic growth. Ideologically Rajan combines free enterprise spirit of Adam Smith, with the welfare orientation of JM Keynes.Like Alan Greenspan, he believes that over regulation is as control. It’s a pity;the book does not reveal the seamier side of his relationship with the top political echelon, that led to his exit. The present memoir leaves the repast, yearning for more!
The author teaches Economics