Saturday, June 11, 2016

Rajan or No Rajan?

Over the last few weeks, an odd battle has begun in the higher echelons of monetary policy making in India - that over the reappointment or Raghuram Rajan as the governor of the RBI for a second term. Emotions are running high and there is plenty of drama on both sides, and everyone except the man himself and the man who will be making the final decision - Prime Minister Narendra Modi - seems to have a strong opinion. The loudest opinion certainly seems to be that of BJP Rajya Sabha MP and maverick, Subramanaim Swamy, who has shot off several letters to the PM about the matter.

From my perspective, I think Rajan may be reappointed, but it is not a do-or-die situation, on either side. He was OK, not great, but not bad either. His two major achievements are stabilization of the Rupee in the wake of the effects of Pranab Mukherjee's disastrous economic policies and global economic turmoil, and forcing banks to own up to their NPA problems. Of course, he has grown an alarming desire to make a comment a day about any and every issue under the sun - a clear sign that he takes himself too seriously, and that can be the first sign of trouble in someone who has some powers.

However, the current debate has become so melodramatic that it is almost ludicrous. On one side, Swamy is coming out with a stream of conspiracy theories. His assertion about Rajan's hawkishness on interest rates has some merit, but it is more nuanced than that, considering how the formal banking sector doesn't even reach small businesses in India (Modi's MUDRA bank is changing that through fiscal intervention). On top of that, his assertion of some time bomb that Rajan has placed is hilarious and unless he backs it up with some real facts, nobody is going to take him seriously. This is not a court case where facts need only be placed before a judge - it is a public debate where facts needs to be stated.

On the other side are Chicago economists who assert that the RBI is nothing without Rajan - a laughable thing to say and one that is quite insulting to economics in India as well as the institution of the RBI itself, which once handled monetary policy for several parts of the world. The RBI does not need Rajan, he might be good in it, but the organization will certainly do well without him. In fact, if indispensability is the case being made out, YV Reddy would be a suitable candidate over Rajan. Perhaps even Manmohan Singh! And then there are the bleeding-heart liberals who know nothing about monetary policy, who can barely solve an equation or read math, but who have made it a habit of seeing everything from a Left-versus-Right perspective, and are looking to do the same here (they are dead wrong if they believe that Rajan supports their tinpot economic fantasies). For this group, the only reason they support Rajan is because they don't want Modi to remove yet another UPA appointee, and thus deny a legitimately-elected governments its powers. This group makes a lot of noise but are not to be taken seriously - ever. They are not even paper tigers.

In the end, as Rajan rightly said, it will be Modi and perhaps Jaitley who will make the call. A well-reasoned public debate is always welcome, and maybe even the funny petitions going around are fine in a democracy. But if it is going to come down to assertions and emotions, then the Prime Minister has the mandate to enforce his own. 

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