Raghuram Rajan exit: Will experts reveal reality behind doomsday predictions?

A non-economist like me is highly confused.

For the past month or two, volumes of opinions and news reports – in print, digital and broadcast – articulated by a number of leading economists and financial experts have been telling ordinary citizens that they should thank their stars for living in India at a time when Raghuram Rajan is the RBI governor. Based on their analysis, I was indeed thanking my stars.

The sum and substance of their argument was that India would be doomed in case Rajan ceases to be the governor, the foreign capital will leave on a supersonic jet from India, the economy will collapse, and though India will still be called India it would look more like Afghanistan, Sudan, Ethiopia et al.

Come 4 September, no NRI will ever again believe in India. No industry and business will ever believe in India. RBI without Raghuram Rajan would be like Agra without Taj Mahal. Now was the time to curse the stars, for it looked like Rajan was leaving.

They meant to say that the highest ever inflow of foreign capital, achieved in the year in 2015-16, which Prime Minister Narendra Modi has been boasting about – US$ 55.46 billion as against US$ 36.04 billion during the financial year 2013-14 – was an intellectual heist.

The FDI figures were correct, they said, but the inflow was not because of the so called dynamism of Modi, or the Make in India, Digital India mantras etc, or the meetings he had with NRIs, heads of governments and nations and with business leaders across the globe. It was because, collectively and individually, the world saw Rajan as the chief of the central bank and because of the confidence he inspired in them.

So in a way, for foreign investors India was Rajan and Rajan was India, as simple as that. But didn’t we hear something like this a few decades ago, India is Indira and Indira is India, albeit in an entirely different context.

I believed the learned writers. After all, they are supposed to know about this intricate subject. They have travelled the world and have high sounding degrees from some of the best known institutions in the world or had served at fanciful positions in various governments at the Centre or been part of some research institute or the other.

It also didn’t matter that the industry, which till other day, was said to be unhappy with Rajan’s resistance to cut interest rates but suddenly they all came together to tell that Rajan was a superman, a demi-God who has taken avatar in India during the worst of times. He was as badly needed to be there at the helm in RBI as a good monsoon in the parched lands of Vidarbha.

I started wondering if it will be alright when Rajan leaves after another three years term, say with an extension till 2019, or if he is so indispensable then why not give him a special term – retirement at 75 so that in next 20-23 years he can take India on a course where nothing can ever hamper us. People would not even care to elect a prime minister or a chief minister, or who it was, for Rajan’s RBI will take economy to a path where even Saudi Kings would envy us.

I had my self-interest. I didn’t want a deluge to hit India and by consequence my family, friends acquaintance and so on, I secretly began praying for better sense to prevail on the Modi government so that it gives an extension to Rajan.

Some of us had seen and even suffered in the 2008-09 meltdown. Based on these arguments, I started worrying about those who worked in multinationals and in companies with foreign capital inflow.

If there was such a massive breakdown in the economy, then even the mightiest of Indian companies would have serious problems, for the world economy is now interconnected. A sense of insecurity was making life difficult for those who cared to read the experts.

The experts had also implied that we must thank the two great visionaries in erstwhile UPA 2 regime, the then Prime Minister Manmohan Singh and then Finance Minister P Chidambaram. If those two, under the able guidance of UPA chairperson Sonia Gandhi, had not spotted and enticed a brilliant Raghuram Rajan to first accept the post of Chief Economic Advisor in 2012 and then be the Governor of the Reserve Bank of India for a three-year term beginning in first week of September 2016, then India by now would yet again have become a land of snake charmers and spices.

And yes, a few days ago Chidambaram had said that, “Modi government didn’t deserve Raghuram Rajan”. Rahul Gandhi expressed gratitude to him through a tweet, “Thank you Dr Rajan for steering the economy in difficult times. People like you make India great”, while lamenting in another tweet that Modi didn’t need experts like him. In September last year, Rajan on his part had the most awe inspiring statement, “My name is Raghuram Rajan and I do what I do.”

I quietly thanked Manmohan Singh, Chidambaram and Sonia Gandhi for bringing him back to India and entrusting him charge of the Indian economy. But why did the economy nosedive and inflation reach an all time high during 2012-14, when he took charge in government and RBI? Why did banks give more loans to Vijay Mallya? And why did corruption plague the UPA government?

Perhaps because he had just come in and his patrons didn’t really understand his policies and it led to a situation where UPA – a regime that brought him in was thrown out of power in May 2014 with such force that no one had seen ever before – reduced to a paltry double digit number of 44. Chidambaram didn’t have the courage to even contest elections, Manmohan Singh announced his retirement and Rahul Gandhi’s votes were reduced by over a lakh.

That thought was confusing. The economic expert writings had not reflected on that period. Should Modi not be thanked for giving Rajan the space to make the turnaround that he wished to make. But the experts were telling us that Rajan as an individual was bigger than the institution, the RBI. Superheroes are always bigger. Remember T. N. Seshan, former Chief Election Commissioner of India. We were also told that the economy moved on right track because Rajan had conflicts with government and that he did what he wanted.

What was most assuring under the circumstances was Rajan’s own headline grabbing one liner delivered on 7 June, just a fortnight back, “It would be cruel of me to spoil all the fun the press is having.”

This meant that he was having fun at what was appearing in press and would be there for a longer haul, and he indicated that he wished that. But who on earth would like to leave the post of RBI Governor, till he is forced out (non-extension of term).

On Saturday evening, when many were in the process of spending a good time with their family, Rajan dropped a bombshell – he is quitting, well not quitting but going back to the part of world he knows better, academia in the University of Chicago, USA. India or its economy was orphaned over the weekend.

In his e-mail to a sundry staffers in RBI , also released to the media, he told us first-hand what experts had told us before, that he saved the day for India, “I took office in September 2013 as the 23rd Governor of the Reserve Bank of India. At that time, the currency was plunging daily, inflation was high, and growth was weak. India was then deemed one of the `Fragile Five’. In my opening statement as Governor, I laid out an agenda for action that I had discussed with you……By implementing these measures, I said we would `build a bridge to the future, over the stormy waves produced by global financial markets’,”

“Today, I feel proud that we at the Reserve Bank have delivered on all these proposals……We have done far more than was laid out in that initial statement, including helping the government reform the process of appointing Public Sector Bank management………I will be returning to academia when my term as Governor ends on September 4, 2016.  I will, of course, always be available to serve my country when needed,” Rajan said.

Was he telling about his achievements or was he telling us about the inefficiencies or lack of grasp and aptitude of previous RBI governors?

His words were very assuring, always be “available to serve”, but then a number of experts explained that “when needed” wouldn’t be in the life time of the Modi government.

Eminent economist Ashok Desai, who served as Chief Consultant with ministry of finance in 1991-93 when Manmohan Singh was finance minister, wrote for Firstpost : “But I do hope he will not get too busy, for there is one thing he should take time out for, namely, write a book about India. It would be great if he told us in his own words about what went wrong between him and India; the more frankly he does it, the better,"

“But even if he does not indulge in luminous candour, even if he keeps the J-word (apparently referring to Jaitley) out of it, his very style will make it riveting reading; in fact, the more he shrouds the shocking real events in civility, the better it will read. And who knows, he may throw out some good ideas about how to reform our economy. There may not be much chance of doing so under the present regime. But regimes come and go; ideas live on – until proved wrong,” Desai wrote.

Some others predicted that on Monday, when the markets opened, rupee would get devalued and that stocks at all markets would plunge to a new low.

By afternoon Desai was proven wrong. Modi government announced its resolve to go on the reform path, without the sage counsel of Rajan. The single biggest announcement concerning FDI in recent times was announced – in nine major sectors including 100 percent in defence, civil aviation and pharma.

The stock market boomed again. The rupee remained stable. The economists, and rival Congress party, predicting the gloomy doomsday arrival after Rajan’s exit were caught unaware. The Congress fielded Rahul Gandhi’s close confidante Jairam Ramesh to declare that, “it is a panic reaction to show the world that it is business as usual even after Raghuram Rajan has announced his exit.”

It didn’t matter that Ramesh had been a union minister, and very well knew that such decisions are arrived at after months of deliberations and file pushing at various levels. It also didn’t matter that some of these announcements were made in this year’s budget speech by the finance minister. If Ramesh is to be believed, then the Modi government rushed through all the paper work in just one day – something that the UPA government couldn’t do in 10 years in power.

One hopes now that the same economic experts would return on the subject to clear confusion, without painting Rajan as a demi-God and without implying that the previous governors were virtual time wasters.