Judging by the effusions penned and spoken in diverse circles of RBI Governor Raghuram Rajan since fellow “Tam Bram” Subramanian Swamy called for his retirement, it would seem that the fall in commodity prices—principally oil—witnessed across the globe for more than a year, has been entirely due to the interest rate tinkering done by Rajan in India. The truth, of course, is that the ultra-high interest rate regimen of the University of Chicago don has made Indian manufactures less competitive globally, while substantially contributing to NPAs because of the numerous domestic companies that have found it impossible to survive in a context of high rates and restricted credit. But for a handful of mega companies having influence in the right places, the overwhelming majority of corporate in India found it difficult to get adequate credit, thereby leading to a lack of jobs getting created in the economy. What little of the economy has been spared by the RBI, has been hammered by North Block, which has, for example, raised taxes to a level that has made the service sector slow down drastically. In addition, police powers comparable to those wielded by the Geheime Staatspolizei in Germany during 1933-45 have been given tax and other authorities in India, so that the usual bribe paid has gone up substantially since Chidambaram and Sibal set out during 2004-2014 to make India’s colonial laws even more regressive and repressive than they have been for two centuries.
It is clear from his policies that Rajan does not understand that the monetary policies followed by him have very little impact on inflation in India, but cuts growth to a level that has meant starvation for tens of millions in cities and towns across India. However, Rajan is not the originator of the policy of high interest rates that is based on textbooks by authors from Germany, the UK and the US. Both his predecessors in the RBI followed the same suicidal path. The seeds of the subsequent slowdown of large swathes of the economy were planted by Yaga Reddy and Subba Rao, both of whom are hailed globally (and therefore in India) as “saviours”, rather than the wreckers they were. Clearly a case of “the operation was successful but the patient died” syndrome, of which Rajan is by far the most “successful” of the trio, in that he has done the most damage to India’s prospects for high growth, but has got the highest praise.
However, there are indications that even Rajan appears to be getting aware of the disconnect between his textbook-driven policies and retail price movements in India. Hopefully, the worst that the present RBI Governor can do is over. These days, the focus within the RBI needs to be less on monetary tightening than on the swelling tide of defective loans in the banking system, which suffers from the cronyism and corruption that became inevitable once Indira Gandhi expropriated large private banks in 1969 for purposes of political advancement. On NPAs, Rajan seems to be saying the right things, although as yet his words do not seem to have been followed by much action. This columnist has been a critic of Rajan for years, yet now that he has probably done his worst on interest rates, if the RBI Governor focuses, in a second term, on NPAs and on ensuring accountability for those who are wilful bank defaulters, it may be a lesser evil to give an extension to him. Certainly the rock star reputation of Rajan in capitals across the globe would help increase confidence in economic management in India, thereby creating a climate for the $100-120 billion of external investment that Prime Minister Narendra Modi annually needs to ensure that enough jobs get created during the coming years to prevent social tensions from spilling over into chaos on the streets and violence in the cities. The RBI should insist on an investigation into how mega bank loans were given to those few borrowers whose agenda of siphoning off the money to overseas havens was transparent. Who were the officers who recommended such loans? Who were the bank directors pressing the case of such looters of the wealth of the people? Prime Minister Modi needs to set up an SIT on the scam that could generate far better results than the SIT set up to “get back black money”, but which thus far has come up not with money discovered but with suggestions for more of the North Korea-style laws that fuel corruption and increase the average level of bribes paid to avoid the conditions set by the new measures.
It is a welcome sign that the start of the third year of Prime Minister Modi is witnessing open debates even within his own party on important policies. The colonial fetish of secrecy has been hewed to in India to such an extent that the public has been excluded from any participation in the making of policy. On the contrary, what is needed are open fora where matters get discussed, much as senior officials needing Senate confirmation are chosen in the US. What is needed is the live streaming across the internet of almost all the discussions that to now have been kept within rooms, with entry restricted to the few who are successors of the British colonial masters and who have since Nehruvian times modelled themselves on them.
A start has been made in the case of the RBI Governor. Let the public debate continue over the coming weeks on whether Rajan should remain a few more years in India or be sent packing back to his home in the US.
This would be in line with Prime Minister Modi’s efforts at public participation and transparency, both essential to the success of his efforts at transformation of the economy and polity from the current 19th century model to a 21st century construct that will ensure double digit growth over the two decades needed if India is to replicate the success of China during the era of Deng Thought.