Dr Raghuram Rajan and the Ongoing ‘Fun’!

This time round, Dr Subramanyam Swamy, the Harvard-educated economist, appears to have gone wrong in choosing Dr Raghuram Rajan as the target for his habitual combative gaming, when he accused that his policies led to the “collapse of industry and rise of unemployment in the economy”; that he was wrong in shifting the inflation measuring tool from Wholesale Price Index (WPI) to Consumer Price Index (CPI); that he has made a “wilful and apparently deliberate attempt” to “wreck the Indian economy”; and that he is “mentally not fully Indian”; that he, being a government official, has “by innuendos in effect held our government (BJP-led government) responsible for climate of intolerance in the country” and hence he must be sacked immediately.

Before getting into the allegations, we must first take a look at how the top brass is appointed in our country to head the institutions of national importance. It is everybody’s knowledge that the officials from the central bureaucracy often enjoy a presumptive claim over such posts, or for that matter even ministerial assignments are often made irrespective of the fact whether one is endowed with the requisite domain expertise, which incidentally is essential to get best results, that too, in today’s complex world. As against this practise, we have for the first time witnessed in the appointment of Dr Rajan as the governor of the RBI a professional with impeccable academic credentials coupled with an experience of watching monetary policy and its management across the countries as the Chief Economist of the IMF, and true to what he said while assuming charge as the Governor, “… I hope to do the right thing, no matter what the criticism, even while looking to learn from the criticism”, he has conducted the monetary policy for the last three years with integrity. This in itself could have been enough to silence the ongoing noise in the press over him!

Having said that, let us quickly recall what Dr Rajan has so far accomplished: one, succeeded in reining in the inflation that was in double digits when he took charge as governor within the targeted level of below 6% restoring macroeconomic stability, of course, partly aided by the steep fall in oil prices; two, RBI, in line with what is being practised in developed countries, has successfully switched over to CPI—a measure of the exact price rise/fall at the consumer level—from WPI to calibrate inflation; three, the new monetary policy framework that he got the government to sign is a landmark achievement in the evolution of monetary policy in India for it grants tremendous amount of autonomy to RBI in managing inflation; four, the CAD as a percentage to GDP has been brought down to around 1.3% from 5% in 2013; five, he relentlessly pursued banks to clean up their balance sheets from bad debts; and six, cumulatively, he raised India’s credibility globally.

There are, of course, analysts who criticize Dr Rajan on two counts: one, that in his blind fight to curb inflation he has sacrificed growth, and two, he deviated from the known path of central bankers of being not ‘activists’. Now first issue first: economically speaking, there is no conflict between low inflation and growth in the medium-term. Indeed, in the medium-term, it is only low inflation that can provide the right environment for sustained growth at higher levels. And, monetary policy is primarily meant for managing the recurrent business-cycle phenomenon. Growth has to necessarily come through structural reforms that pave the way for raising productivity, improving the ease of doing business. Indeed, it is time we understood that it is not monetary policy that generates high growth and who else knows it better than the Harvard educated! Then moving to the accusation that he transgressed the commonly perceived remit of his post by commenting on issues that could be construed as political, we may have to admit that Dr Rajan behaved differently from the known practices of the central bankers, although very few could disagree with his opinion on matters of tolerance, etc.

Nevertheless, the ongoing ‘fun’ in the press is of bad taste, for no civilized society attacks individuals but their policies only. Indeed, as Prof Gita Gopinath of Harvard University said: “Nobody is perfect, but he [Dr Rajan] would be pretty close to as good as it gets.” And the common man on the street remembers him as the Governor of RBI who brought down inflation—measured for the first time based on CPI—substantially, indeed halved, that too, when the global economy is passing through one of its worst crisis. And it is this competence and credibility of him that makes his replacement that much more demanding.