Chai(wala)nomics vs Dosanomics - the grand tug of war!

        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!