Saturday, 18th
June 2016 – the day when chai(wala)nomics subjugated dosanomics – a recurring
phenomenon that found its first manifestation on 16th May 2014 – the day the
Narendra Modi led NDA government came to power. There are some, well read and
meritorious included, who are yet to come to terms with this. How and why on
occasion after occasion chai(wala)nomics continues to subjugate innumerous such
dosanomics’ in India are questions that baffle many an elite and a common man
alike. So here is a tale of the grand tug-of-war among the four most important
individuals in this game, their wins, and their losses.
The tug-of-war,
long overdue, has begun only to get uglier. It is convoluted because though
everyone seems to be pulling and pulling hard, nobody knows where to. In one
corner we have the once upon a time tea-seller (chaiwala) turned now full time
Prime Minister, Narendra Modi. In corner two, we have the virtual number two in
NDA, Finance Minister Arun Jaitley. In corner three, the man of the moment Dr.
Raghuram Rajan, the governor of the Reserve Bank of India (RBI) who announced
on 18th June that he will not seek a second term. Lastly, in corner four, the
unguided missile (as they call him) and the big time anti-graft crusader Dr.
Subramanian Swamy.
PART ONE OF TWO: WHY REXIT WAS BOUND TO HAPPEN.
There is a
reason why bureaucrats of high standing fail to get (forget get into) politics.
Their solutions are limited by their reach and not their intellect. It is their
reach and position which prevent them from looking at the bigger picture and
the greater good. Dr. Rajan, as dynamic as he is, while taking a stab at the
new world order failed to gauge the new India order post May 2014. What he did
during the UPA regime was well timed and apt. But the problems that the
majority of the Indians identified with this country that the NDA promised to
solve had nothing to do with monetary policy and the ancillary institutions. A
tight monetary policy to induce stability and discipline in the market was
desirable under the incapable and scam laden UPA/Congress government. But these
very policies proved to be impediments under the new and popular Modi
government.
Dr. Rajan, in
his defense (or offense, if you see it that way), would attribute majority of
his decisions to one of these three – crony capitalism, current account deficit
and forex reserves (in the first half of his term at least), and of course
inflation. For crony capitalism: How much has he been able to achieve as a
governor of RBI to stop the phone calls from Delhi from getting loans passed?
How much of an influence has he been in terms of getting the inefficient and
corrupt bosses/babus fired from public sector banks? How many willful
defaulters has he been able to bring to justice in his capacity as the RBI
governor? Logic tells me that the ones mentioned above are the prerogatives of
the government and not the governor.
For current
account deficit and forex reserves: The only meaningful way how monetary policy
can help diminish CAD is by devaluing currency to decrease the cost of exports.
Nobody in their right minds is a proponent of currency devaluation in India.
Other important factors, which Dr. Rajan clearly has no control over but the
government does, include anti-dumping measures, FDI, and some fiscal stimulus
(i.e. increase in government spending and/or reduction in taxes). Secondly,
thank god that unlike Congress the Modi government did not participate in
appeasement politics by immediately transferring the benefits of the savings
from plummeting oil (that India has traditionally had a huge appetite for being
one of the biggest importers) prices to the consumers. The government chose to
divert the benefits to other indirect measures like CAD, forex reserves, and
infrastructure investment. Needless to say, an immediate transfer of benefits
would have led to nation-wide and multi-sector price disruptions and would have
followed by knee-jerk responses from the market, all proving counter-productive
from stability standpoint.
For inflation:
The problem starts when the magician starts believing in his own tricks. I am
wondering why nobody is talking about the significance of sharp global decline
in commodity prices on declining Indian inflation. And inflation is one issue
that I personally do not understand. Modi government has cheated this country
because prices of aloo-tamatar-daal (potato-tomato-pulses) are still high but
Dr. Rajan is the great savior because he controlled inflation? If I were Rajan,
I would know it is time to take it easy and be an enabler to the finance
minister because mehengayi, rozgaari, beti-ki-shaadi, nal-me-paani, etc., ever
since Modi came to power, were anyway going to be his problems and not his.
But then he is
Dr. Raghuram Rajan and he does what he does (as he famously claimed on Sept 29,
2015). But also then there are other things that he does that tend to get him
into trouble. I did not want this blog to be a rant against him, because after
all he took the right decision in the end; that while he deserves a goodbye, he
deserves a good good-bye. But his is a classic case reemphasizing the
importance of having your nose and mouth at the right place along with your
heart. The man who claims to be in love to be in the realm of ideas ironically
and eloquently has been repudiating countless Modi government initiatives like
Make in India. His view reduces to his belief that all Modi is seeking is to
clone the Chinese model. Again, it is not Rajan’s intellect but his reach that
abandoned him. While being aware of the implausibility of the success of such a
replication, had that been the case in the very first place, he turned
parochial towards the bigger issues that Modi targeted like job creation,
reverse brain-drain, foreign investment enticement, technology and knowledge
exchange, along with ever increasing self-reliance, which ultimately lead to
his decadence.
Though people
think it is Rajan’s supposed strength and resistance to pressure that make him
more enemies, I hold it is his sugar-coated oratory and a facile comportment
that make him more friends –friends who target Modi placing a gun on his
shoulder.
EDIT (July 06,
2016) - Dr. Rajan is welcome as a public intellectual and critic. In our
country, India, we welcome difference of opinion and encourage debate. I, by no
means, intend to encroach upon anyone's freedom of speech. My contentions,
broadly, are two - 1) Don't mislead the people by trying to project yourself as
a hero for something that you in your capacity never could have accomplished.
2) Have a sense of the chair that you occupy and know that there are times when
you are much more than your thoughts and speech. You represent some entity and
your words and are not taken as your alone but that of the very institution
that you are a part of and are employed by. If you violate this unwritten rule
and choose to take jibes at others in public forums out of your
self-righteousness, be rest assured the same will happen to you. It is natural
that Digvijay Singh and Arvind Kejriwal get treated differently than Dr.
Manmohan Singh and Dr. Shashi Tharoor. India, after all, taught the world the
concept of Karma!
The takeaway:
being oblivious to the fact that there is only so much that monetary policy can
do as a growth propellant as compared to fiscal policy, can result in something
of Dr. Subramanian Swamy style and magnitude happen to you, especially if you
are the RBI governor.
(PART TWO, COMING SOON)
P.S.: I dedicate this piece to my elder brother Chirag Bharat
Muchhala. Copying your ideas and presenting them as mine is my birthright!
