By getting Raghuram Rajan out, Modi may have won, but India has lost
After months of speculation on whether Raghuram Rajan will give in to the pressure of people like Subramanian Swamy whom the government had unleashed on him, the Reserve Bank of India (RBI) governor has decided to call it a day. In doing so, Rajan will become the first RBI governor in over two decades to not get a second term.
Perhaps it should not be such a surprise after all. Meritorious people like Rajan who refuse to toe the government's line, are routinely shunted out in favour of stooges like Gajendra Chauhan and Pahlaj Nihalani.
Predictably, the Modi governments' spin masters have come up with various methods to deny they had a role in this decision but the following facts clearly indicate that Modi government cannot wash its hand off the decisions:
1. Upfront opinions made Modi government see red
Raghuram Rajan was among those who questioned the Modi government’s tall claims of putting the economy back on track by terming India as the “one-eyed king in the land of the blind”, Rajan also doubted the growth figures lending more credence to the critics of the government.
By subtly exposing the government’s claims, Rajan earned a lot of hostility from the ruling party which in any case does not look upon criticism kindly. Those who have dared to criticise the government have been "advised" to leave the country and go to Pakistan, or put in jail or assaulted as JNUSU president Kanhaiya Kumar found out.
2. Rajan angered Modi government with his independent actions
Modi government's angst with Rajan ran deeper than mere anger with words, his measured actions which otherwise the whole world appreciated, didn't go down too well with the government.
The government was impatient with his measured moderating of the interest rates as he prioritised handling inflation over growth (which in any case is the prime responsibility of fiscal policy, not monetary policy). The call for his head increased more as with his principled adherence to economics, Rajan refused to appease the Modi government. Even senior cabinet ministers started taking snipes at him providing a glimpse of the tension that lay underneath the niceties at the surface.
3. An environment of sycophancy unsuited for talented people
As Modi government is filling important posts with sycophants without any merit, it has created an environment where upright people are finding it suffocating to work. The signal is clear, crawl before the emperor or get out of the way. So Rajan, an exceptional economist with integrity and spine, obviously was the odd one out in a regime filled with mediocrity. Sooner or later, he was bound to walk away from a regime that punishes talent.
4. Being a Congress appointee, he shared an uneasy relation with RSS-BJP
Modi has an all-consuming hatred for the Congress and he is suspicious and revengeful towards the appointees of the Congress government. Rajan's biggest crime perhaps was that he was a Congress appointee. This made the government suspicious from the start and Rajan's independent style of functioning. Being a Congress appointee, he was resented by many in the present regime.
 |
5. Cleaning up the banks angered crony capitalists and the government Rajan had put his weight behind cleaning up the banks which have been crippled by the losses inflicted on them by politically powerful corporate bosses such as the Adanis and Mallyas. By taking on such powerful corporates, Rajan earned their ire too. The government was not too pleased with banks being compelled to mark more of their loans as NPA. So the enormous power of the crony capitalist-politician nexus also worked overtime to light up the fire against Rajan.
6. Secular beliefs made him a misfit under Modi government Rajan is a man of secular beliefs and working in a regime whose head mocks secularism abroad must not be such a comforting factor for him. His secular beliefs also made him voice concern at sectarian incidents, naturally straining ties with the government. For all these reasons, the Modi government was eager to go after Rajan. The government was in a dilemma on how to take on Rajan without angering the investors and the middle class who were the BJP's most staunch supporters. Enter Subramanian Swamy. Modi government found a tried and tested weapon in Swamy who is the master of below the belt attacks.
By using Swamy, the government could stave off the anger that attacking a person of integrity like Rajan would generate from the middle classes by terming Swamy's attack as a result of his personal views and at the same time get rid of Rajan.
Swamy quickly proved fit for the task and started hurling abuses and charges left, right and centre at Rajan. Rajan being a decent person refused to engage in a public spat. But Rajan is no politician who could endlessly engage in the dirty game that Modi government threatened to drag him into through the likes of Swamy.
For someone who values his integrity and whose decency forbids him from such a quarrel, the risk of his image being regularly sullied must have weighed on his minds; also a government not to eager for his continuation would have made his job still harder.
So sensing that he could contribute little in the face of a hostile government, and at the same time that his name would be dragged through the mire, Rajan gave in and the Modi regime now has one independent mind less.
The Modi government then has scored another victory, but the ouster of Rajan is going to adversely affect India in the following ways:
1. Undermine global confidence in India Rajan was a darling of international investors. His honest views earned him a credibility that benefited India. As long as Rajan was there, the international investor could rely on him to get the true picture. His unmatchable credentials in the field of economics also boosted confidence in India.
In these turbulent times, his presence ensured the international community still retained its confidence in the Indian economy. Rajan’s controversial refusal to a second term will surely undermine the global confidence in India.
2. Endanger the clean up of banks Rajan's honesty, his deep understanding of economics and his international standing which made it difficult to push him around, ensured the much-needed clean up of banks was gathering momentum. The banking rot that has threatened India's financial system and even its economy at least looked to be controllable with Rajan at the helms of the RBI.
But with Rajan bowing out, this clean up will be in danger. The person who replaces Rajan will most probably have far less understanding of the field of finance to deal effectively with the complicated situation. Also, he/she may not have the stature to withstand pressure in the manner in which Rajan could.
3. May lead to inflation rearing its ugly head once again Through sustained focus on inflation, Rajan had lowered inflationary expectations as the consumers understood that Rajan meant business. Even in the face of much pressure from government the RBI governor never relented, further signalling to the market that at least under him the RBI's priority won't change by the day.
Now when, inflation seems to be on the upswing, Rajan demitting the office can again boost inflationary expectations. This can again see inflation rearing its ugly head. The stability that Indian economy enjoyed owing to low inflation may soon become a thing of the past. This will further make India's fledgling economic recovery more fragile.
4. Make the talent crunch still more acute Rajan’s exit will create discomfort among the few talented people in this regime. Less talented people will be inclined to serve in the government seeing how talent is treated. So the government's performance will suffer with the dipping talent level in its ranks.
The loss of such a stellar personality as Rajan will have ramifications beyond what the government may have imagined. He was a common man’s hero, whom the government has robbed the nation of too soon. It may be a victory for the government but is certainly a defeat for the nation.