That Reserve Bank Governor Raghuram Rajan would not last much longer as the Rock Star of Mint Street was foretold. However, what Ministers and Mandarins running India from the heights of Raisina Hill had not anticipated was his sudden resignation one June evening, creating shock waves in the bond and money markets as well as on news and social media. Not to speak of the considerable embarrassment for their ilk.
Finance Ministry officials have for long been haranguing the Reserve Bank
of India Governor Raghuram Rajan on what they considered to be his obstinate
stand on controlling inflation ahead of cutting interest rates.
North Bloc top brass as well as the ruling BJP were impatient to post a
rosy picture of the economy, especially of industry given the fact that the
Prime Minister had launched a `Make in India’ programme with much fanfare.
Despite their reasoning with numbers that industry was not growing and in some
months was actually shrinking, Rajan very rightly pointed out that a half
percent or a percent cut in lending rates would not really see a rush of investors. Instead
he pitched for controlling a runaway inflation which was severely shrinking the
Common Man’s ability to buy goods and services needed to have a decent life and
to create a demand pull for the economy.
The other issue on which the Government did
not see eye to eye with Rajan though they did not have the gumption or courage
to talk to him on, was his extremely strict norms for recognizing bad loans and
his policy that business houses which had run up large bad loan portfolios would not get
any new hand-outs.
The power, finance and transport ministries on the contrary were asking
the RBI and banks to consider a regime which would let defaulters access fresh debt to finish what they called pending projects – power plants, highways and
ports - stuck in limbo as the economy faltered post the 2008 Wall Street crash which saw
investors dithering on taking fresh risks.
The Reserve Bank’s point was that India's stretched banking sector alone could not be exposed to
risks. If projects were to be completed by the promoters who had not paid back
loans, then they had to bring some money and guarantees on the table or the
Government had to give subsidies. Not a very comfortable situation for an
industry and government machinery used to treating banks as their personal piggy
bank.
Even after multiple investigations had found several private sector investors guilty of
padding costs and siphoning off loans to fund other business or private expenses, precious little had
been done to bring them to book. Instead in many cases in the past they had
been rewarded with fresh cheap loans, something which Rajan wanted stopped.
In private, top bureaucrats are believed to have warned Rajan that his
stand could cost him a second term in office. Rajan however publicly made it
clear that the culture of impunity for big business would have to end, stating
very aptly in one conference “No one wants to go after the rich and
well-connected wrong-doer, which means they get away with even more.”
Rajan is
considered one of the brightest young economists, globally, having earlier
forecast the coming global financial crisis in a lecture made to the world's
central bankers at their annual retreat in Jackson Hole, Wyoming, USA in August
2005. Not something which the central bankers exactly appreciated at that time.
Writing later in his bestseller `Fault Lines: How Hidden Fractures Still
Threaten the World Economy’, Rajan described the situation as : "I exaggerate only a bit when I say I
felt like an early Christian who had wandered into a convention of half-starved
lions." Possibly that is exactly how his relationship was with the powers
that be in New Delhi.
The academic-turned central banker, who enjoyed almost rock star like
status with the media, had not either endeared himself to the Government by
his plain speaking on various issues including the hype around `Make in India’,
where he had pointed out that the global economic situation was not conducive
to an export-led growth strategy and that India would have to carry out hard
nosed reforms to pep up its own home markets. Nor was his use of the adage "in the land of the blind, the
one-eyed man is king” in the context of much tom-tomming about India’s economy
growing at a fast clip, taken kindly. Especially when both the prime minister
and finance minster were repeatedly stressing in global forums that India was
“the bright spot” in a faltering global economy.
Despite
finance minister Arun Jaitley debunking sharp and acerbic criticism of him by
BJP MP Subramaniam Swamy, the fact remained that he had angered the powers that
be and they wished to see the back of Raghuram Rajan as RBI Governor. Tellingly, a month back Prime Minister Narendra Modi told a Washington Post interviewer that he did not “think this
administrative subject can be an issue for the media. And that issue is only in
September, not now,” when questioned on whether Rajan would get a second term.
That the Government had no intentions of giving the RBI Governor
a second term was also made clear in its reaction to his resignation. No calls were
made by the finance minister asking him to reconsider his decision. Instead
Jaitley chose to put out on his facebook a bland statement : “Dr. Raghuram
Rajan has announced his intention to go back to academics at the end of his
current assignment.The Government appreciates the good work done by him and
respects his decision. A decision on his successor would be announced shortly.”
Former
finance minister P.Chidambaram who had helped appoint Rajan to the hot seat, like his successor possibly did not always see eye with him on India’s interest rate regime while still at
North block. However, with Rajan delivering a resignation ahead of the BJP
saying no to a second term, Chidmbaram came out in his defence. "I am
disappointed and profoundly saddened by the decision of Dr Raghuram Rajan to
leave the RBI on completion of his term on September 4, 2016, but I hasten to
add that I am not surprised at all," he said in his reaction.
"As I
had said sometime ago, this government did not deserve Dr Rajan. Nevertheless, India
is the loser.”
