10 Raghuram Rajan Comments That Made Modi Government Squirm

[This article first appeared in HuffPost India on 23 January 2017.]

When Raghuram Rajan took over as RBI governor amidst a gloomy economy in 2013, The Economic Times showed him as James Bond in a graphic. The headline read, “The man who predicted world’s future set out to correct India’s present.”

It wasn’t all sunny after the Narendra Modi government came to power. Differences over rate cuts that soured the Raghuram Rajan-Modi relationship, and his frequent comments and sagely advice on various issues embarrassed the Modi government.

Citing sources close to Rajan, The Indian Express reports that apart from hostility from cabinet ministers, Rajan was also miffed at the government’s tepid condemnation of BJP Rajya Sabha MP Subramanian Swamy’s personal attacks against him — and thus chose not to seek an extension.

It is unusual for a Reserve Bank of India governor to not get a 2-year extension after a three-year term. Here are ten examples of Raghuram Rajan saying things the Modi government didn’t like. This is not a comprehensive list.

1. Rate Cuts

“My name is Raghuram Rajan and I do what I do,” he famously said when a journalist wondered he was Santa Claus in announcing a 50 basis points rate cut when people expected only 25 basis points. This was after refusing to lower interest rates for some time, as the Modi government wanted him to do in order to boost economic activity. Rajan insisted he would lower interest rates only when he was confident that inflation was under control.

“We want to make sure that word sustainable and growth go together. Both are important. And that’s why we used what room we had. But I don’t think we were excessively aggressive. We were not throwing out Diwali bonus,” he said.

He said about rate cuts in June 2015, “We have always used the room we have had. We have never had excess room. When people look at today’s (Wednesday’s) inflation reading 4.87 per cent, they can’t understand why rates haven’t been cut more. They do not understand the fact that we are trying to look at future inflation. Now, that is an art, not a science.”

2. Make For India

In 2014, he cautioned against the ‘Make In India’ scheme’s effort to make India a global manufacturing hub, arguing that India had missed that bus. The domestic market, however, was so large that the policy should be ‘Make for India’.

Rajan said in a speech to business students in Kashmir, “I am also cautioning against picking a particular sector such as manufacturing for encouragement simply because it has worked well for China. India is different, and developing at a different time, and we should be agnostic about what will work.”

3. Don’t Get Carried Away By GDP Growth Rate

Rajan’s description of the Indian economy as andhon mein kaana raja (a one-eyed king in the land of the blind), invited disapproval from finance minister Arun Jaitley, his junior minister Jayant Sinha as well as commerce minister Nirmala Seetharaman. But Rajan has repeatedly made the point about not getting carried away with the “fastest growing economy” tag.

“India is the fastest-growing large economy in the world. But as a central banker, I cannot get euphoric with India’s economic growth rate as it is at the cusp of a substantial pick-up in growth. I see scope to grow faster, given the capacity utilisation and agricultural output,” he said.

On another occasion, he asked us to look at the size of the Chinese economy: “India is one-fourth to one-fifth of China’s size. Even if we can overtake China in terms of growth rates, the magnitude of the effect will be far smaller for a long time to come.”

He was conscious of what he was saying, and despite the government’s disapproval, he did not retract his statement. Apologise he did, but only for offending the visually impaired.

On another occasion, Rajan said, “I cannot get euphoric if India is the fastest growing large economy… We cannot get carried away by our current superiority in growth, for as soon as we believe in our own superiority and start distributing future wealth as if we already have it, we stop doing all that is required to continue growing. This movie has played too many times in India’s past for us to not know how it ends.”

4. Not A Cheerleader

Rajan has been conscious of the impact of his utterances. “The RBI is not a cheerleader,” he said in June last year, indicating it was his job to strike a cautionary note amidst euphoria.

“Our job is to give people confidence in the value of the rupee, in the prospects of inflation, and having established that confidence, create a longer-term framework for good decisions to be made. Every time an exporter comes to me and says that stability has been very valuable for us to make decisions, that reinforces my view that these our main role is not to act as cheerleaders,” he explained.

“The governorship of the central bank is not meant to win one votes or Facebook ‘likes’. But I hope to do the right thing, no matter what the criticism, even while looking to learn from the criticism,” he said on another occasion.

5. Intolerance And The Economy

Amidst the intolerance debate, Raghuram Rajan gave a speech in which he emphasised the need for tolerance, even as the Modi government was busy saying there’s no intolerance in the country. Rajan said tolerance of ideas and dissent was necessary for start-ups and economic activity. “The first essential is to foster competition in the marketplace for ideas. Without this competition for ideas, we have stagnation,” he said.

For this marketplace of ideas, Rajan reasoned, tolerance was necessary. He said, “Tolerance means not being so insecure about one’s ideas that one cannot subject them to challenge – it implies a degree of detachment that is absolutely necessary for mature debate.”

“I think we all have to work to improve public dialogue. Speakers have to be more careful with words and not be gratuitously offensive. At the same time, listeners should not look for insults everywhere, and should place words in context so as to understand the intent,” he said.

6. The Doubting Thomas Of GDP Calculation

On more than one occasion, Rajan has doubted the government’s new methodology of calculating the GDP figure, according to which the 2013-14 GDP growth rate was revised upwards.

In June last year, Rajan said that there was a “contradiction” in the economy growing at 7.5% and other indicators of economic activity, such as poor corporate earnings and slow consumer demand.

Taking a dig at the government’s push for interest rate cuts, he said, “It is a sort of discrepancy in the eyes of the world that why we still think the economy needs rate cut when it is growing at 7.5 per cent… Most economies growing at 7-7.5 per cent are just going gang-busters and the issue really is to restrain growth rather than to accelerate growth. We still have weak investment, it is very tepid and we haven’t seen a strong pickup,” Rajan said.

“The growth is weaker than the headline number suggests,” he said, if you subtract special factors such as excise taxes and subsidies.

He pointed out another problem with GDP calculation: “We have to be a little careful about how we count GDP because sometimes we get growth because of people moving into different areas. It is important that when they move into newer areas, they are doing something which is adding value. We do lose some, we gain some and what is the net, let us be careful about how we count that.”

7. Crony Capitalism

In August 2014, soon after the Modi government came to power, Rajan said in a speech, “One of the greatest dangers to the growth of developing countries is the middle-income​ trap, where crony capitalism creates oligarchies that slow down growth. If the debate during the elections is any pointer, this is a very real concern of the public in India today.”

He went on to explain why voters elect corrupt politicians. “The tolerance for the venal politician is because he is the crutch that helps the poor and underprivileged navigate a system that gives them so little access. This may be why he survives.”

Rajan warned that crony capitalism’s impact on bad loans in public sector banking could spell trouble. No one wants to go after rich and well-connected wrongdoer, he said.

8. Slow Down With Jan Dhan

Rajan cautioned the government over the super-fast speed with which it was seeking to open bank accounts for the poor under the Jan Dhan Yojana.

“The objective of the scheme is universality (of bank accounts), it is not just speed or numbers,” Rajan said, adding, “The system is going to be a waste if what we do generates a whole set of duplicate accounts. It is going to be a waste if you do not have full coverage. It is going to be a waste if those accounts are not used, they open and they languish. Many of the persons who are coming into the system are coming for the first time, so if we don’t make a good first impression, they will stay out. Let us ensure it works.”

9. Enter Hitler

This one must have hit home. To make the point that strong governments didn’t necessarily bring prosperity, Rajan invoked Hitler. He said in a speech in Goa in February 2015, “His was a strong government, but Hitler took Germany efficiently and determinedly on a path to ruin, overriding the rule of law and dispensing with elections.”

10. Don’t Blame Me

In a BBC interview in August last year, Rajan said, “I have been a little concerned about the immense burden for action that is falling on central banks and I think it is quite legitimate for central banks to say at some point we can’t carry the burden ourselves in fact we may not have the tools to do everything that is asked of us.”

The comment was in a global context, but the sentiment was domestic too.

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