Sometime in his past, perhaps as a child, Reserve Bank of India Governor, Raghuram Rajan, must have witnessed a “tandava nritya, the dance of death”. For that is what the economics professor from Chicago (the city whose economists sent South America into chaos in the 1970s) is indulging in, as he follows his predecessor Duvvuri Subbarao in pushing up bank interest rates to levels that ensure that significant tranches of domestic industry get killed off. If the UPA is facing the rout that opinion polls are forecasting, the reason lies in the fact that millions upon millions of young people and their friends and family are suffering the effects of years of joblessness.
Those who claim that communal polarisation is the reason for Narendra Modi’s popularity, are wrong. Much, if not most, of those casting their ballots for the Gujarat strongman are doing so in order to welcome a future in which they find employment. Certainly young (first-time) voters have been seen in every election. But this time around, they are in unprecedentedly large numbers, fully a hundred million in total, and nervous at the prospect of five more years of jobless growth. Just as it was the economy which propelled William Jefferson Clinton to office as President of the United States, it will be the cry for “jobs, jobs, jobs” that power the shift of Modi from the Chief Minister’s Office in Gandhinagar to the Prime Minister’s Office in Delhi.
In his efforts of creating more jobs, Modi will run up against a major roadblock, and this is the Reserve Bank of India, whose last three Governors have seen their task narrowly as “inflation targeting” i.e. the use of monetary policy as a supposed means of bringing down prices. That those whose incomes are rising would not be overly concerned about a bit of price rise, while those who lack income because they lack work would find even a relatively lower level of inflation to be more than they can bear. In other words, the focus of sensible — indeed, sane — economic policy has to the boosting of growth and employment. To Raghuram Rajan and his predecessors Yaga Reddy and Subbarao, the only task of the Reserve Bank is using monetary policy to try and damp down prices. Not by boosting production through lower interest rates but by choking consumption through restrictive monetary policy and the boosting of interest rates.
Indeed, Rajan has shown that any excuse is good enough for him to continue on a course that is suicidal. Some months ago, he talked of a bumper harvest increasing rural incomes and therefore consumer demand, which in his view would trigger off a burst of higher inflation. Hence, the need for high interest rates. More recently, he dug into his knowledge of geography (which seems as rudimentary as his command over the economy of a country other than the US) and said that El Nino could cause crop loss and hence push up farm prices. And so, interest rates needed to be kept high! Whether boom or bust, crop failure or bumper harvest, the hero of the Chicago School has a single-point remedy: high interest rates and restrictive monetary policy. Some NGO needs to file a complaint against him in the UN Human Rights Council for causing so many millions of the very poor to remain deprived of any other than the excuse for work going by the name of MNREGA, that is, when that council frees itself of NATO tutelage.
When Subbarao was RBI Governor, and followed Yaga Reddy’s policy of seeking to emulate Jawaharlal Nehru in destroying domestic industry in India, then Finance Minister Pranab Mukherjee sought to knock some sense into the Central banker. However, because of backing from Prime Minister Manmohan Singh, who has been as dismissive of the travails of domestic industry as he is solicitous of foreign commercial interests, Subbarao refused Pranab Babu’s request. Raghuram Rajan too has the backing of the individual who chose him for his current job, Manmohan Singh, which is why he is on his present destructive course. For any rational mind, growth and employment are as important as inflation targeting, which is why it is inexplicable why three successive RBI Governors have focused only on inflation, that too by adopting measures that have near-zero effect on curbing prices.
Clearly, Raghuram Rajan does not care that the Indian economy is gasping in pain because of policies urged on him by a clutch of former graduate students at his university.
His sights seem set on being the first Third World head of the IMF, where he can be expected to be even more faithful to the agenda of NATO member-states than his predecessors. Those hoping that Narendra Modi will fail in his task of rejuvenating the economy are pinning a lot of hope on Raguram Rajan.