May 16, 2016

The Importance of Being Raghuram Govind Rajan

Visitng Fellow, Shankkar Aiyar in this The New Indian Express article looks at the current tenure of the Governor of Reserve Bank of India, Dr. Raghuram Govind Rajan and gives a politico-economic lowdown on his accomplishments as the Governor. While lauding his policy moves for making the banking system more accountable and transparent he also points that much more was expected from his tenure than what has been achieved.


Excerpts below:


"The rage and rant against Rajan is less about what he did or did not do, and more about what he said and what he did mean or did not mean. Unlike his predecessors, and heads of other Central banks, Rajan is known to air his opinion and not just on monetary policy. The choice of phraseology has been an issue. His exposition of the relative merit of India in the global economy as the one-eyed king among the blind, his reference to Hitler to elaborate on the cohabitation of efficiency and authoritarianism, his view on Make in India are on the list of exhibits."

"....They assert that he brought stability to currency, lowered inflation, opened up banking, and forced the cleaning up of bank balance sheets. Ergo, Rajan is indispensable.  But Swamy doesn’t agree. The economist-turned-politician contends Rajan hiked interest rates in the garb of controlling inflation, which has damaged the country and is the cause of the collapse of industrial activity and unemployment. Right or wrong, there are many—economists, industrialists and ministers—who subscribe to this point of view. Whether he could have, should have done what he did not is in the realm of probability analysis and a subject for a doctoral thesis."

"Away from the heat and dust of politics, academics observe that the clean-up of banks was inevitable—gross NPAs shot up from `1.8 lakh crore in 2013 to over `3.6 lakh crore. Further, while the transparency brought about is welcome, resolution to what is a complex political economy issue is not yet visible. Addressing the consequence is not the same as addressing the cause. Critics within the academia point out that Rajan, who authored “A 100 Small Steps” report in 2008, has been rigid on many long-term reforms—on the composition of the monetary policy committee and on the institutional framework for the omnibus financial sector law. It is a moot point as to how many of the “100 steps” have been walked."


The entire text of the article can be seen here.

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