(Chanakya)

Dr Rajan’s announcement did not create an apocalypse as the doomsdayers forecasted. Markets didn’t crash like the world is ending tomorrow and the rupee didn’t yet touch Rs.72 in a day and no, hundreds of billions of dollars didn’t leave India. Infact, the contrary happened because the Modi Government announced a slew of measures to bring them in more – the dollars in the form of FDI. But I was unpleasantly surprised to see the heavyladen messages of the pink papers on the exit of Dr Rajan. Even Lord Mountbatten wouldn’t have garnered as much press and attention as RR in passing the baton to the next Governor. I was shocked to read one broadsheet newspaper (whose name bears the same name as the Street on which the RBI Governor goes to work every day ) devote almost 50 per cent of the day’s analyses and news to RRexit. One popular business channel even had a chirpy banking correspondent (who always asks “intelligent” questions to the RBI Governor on days of Monetary Policy announcement) wear black dress as a protest against the abrupt end of Dr Rajan as Governor. This is the same lady who was once asked by the venerable Dr.YV Reddy to “shut up and get your basics right” when she was talking like Lady Ga-Ga in a public press conference.

What pains me is that the country has made a spectacle of an RBI Governor’s appointment as if the government is to be faulted and there is no bench strength in RBI if Dr Rajan decided to call it quits. History may be very kind today to Dr Rajan but one has to note that his sense of timing has been perfect to a fault once he got the signals from the Government that the keenness to renew his tenure may not be there. Even the most successful men have an Achilles’ heel that will unravel their achievements. For Dr Rajan it could be the foot-in-the-mouth disease, of talking shop about areas outside of monetary policy framework like corruption, birthday parties of rich people, one-eyed king in the country of blind etc. Of the over two hundred speeches that the Governor had given, there is prescience and wisdom in many but there are also wedges that cut back into the Powers who decide his fate one day – whether he is talking about the skills base of Indians or the campaign of Make For India instead of Make in India. This is perhaps the main difference between Dr Rajan and those who preceded him like Dr YV Reddy or Bimal Jalan.

Dr YV Reddy was equally forthright in his views but never but it abrasively or in a manner that could inflict collateral damage to the brand of Dr Rajan through the lens of the Ministry of Finance. For the year 2013-14, Dr Rajan wrote the Economic Survey but this year it was the turn of Dr Arvind Subramanian who had a public spat with Dr Rajan over the issue of RBI doing its bit in recapitalizing the banks. Instead of answering and sorting it out in closed-door meetings, Dr Rajan faulted Dr Arvind’s reasoning that RBI’s reserves could also be used to recapitalize the capital-starved Indian PSU banks. It is instances like these which have steadily expanded the room for friction between the MoF and the RBI. What the RBI Governor could have done better is to be tactful and mindful of most of his public announcements and speeches. For every upside of popularity about axiomatic explanations for such simple things as why the price of Dosa keeps going up, Dr Rajan could have sorted the differences between him and the MoF on different matters amicably instead of issuing embarrassing soundbytes in invectives and idioms disguised as public speeches. He has also never done enough to deflect impressions of being an appointee or an exponent of the Chidambaram school of economic thinking.

Despite solid achievements in this eventful tenure, Dr Rajan’s achievements could end up as lucky if the inflation starts to inch up higher from hereafter. Note that the control of inflation which goes to the credit of Dr Rajan has happened because of a steep fall in crude oil, metals and agricultural commodities which have hit multi-year lows. So, leaving now would make Dr Rajan look like a Volcker who tamed the beast of inflation. But in doing so, he forgot the basic rule of not messing with Growth rates and the health of the banking system which got shaken by the iron-clad implementation of stiff NPA provisioning norms by the RBI, it led to two quarters of huge losses which not just squeezed the big businesses but also the small firms. A better sense of timing or phased provisioning would have ensured some divestment of banks as well as a better credit flow where it matters and when it is needed into the main economy – of which Dr Rajan remained largely unperturbed. The fact also remains that a lot of these colossal NPAs were a result of big borrowers who struck sweetheart deals with the previous Union Government’s active encouragement and involvement in the infrastructure products.

Now of course, technically, Dr Rajan’s tenure will be brilliant because he has saved the economy from collapse of the rupee, broke the back of inflation and tamed the PSU banks to report bad debts accurately. But a lot of inflation targeting has been equally done by the Central Government in reining in fiscal deficit, controlling government expenditure and even starving the State Governments of its pooled dues. Most of the inflation is down because of global factors exogenous in nature. The next incumbent will find it nightmarish to tackle inflation which will now start soaring and even Dr Rajan, had he continued, could do nothing about it. Such are the ways of history – it is partial in the present but unforgiving in the long-run.

But this experiment of Dr Rajan kickstarted by Dr Manmohan Singh had its merits. Had Dr Singh not brought in Dr Rajan, he would have remained a million-copy bestselling author and a professor of Economics at University of Chicago who would still be earning upwards of a $500,000 salary and royalties from writing for Project Syndicate and plenty of speaking assignments. These three years have given him a stint at Bank of International Settlements (BIS) as Vice-President which comes only to Central Bankers by invitation, not by academic achievements. No Indian has ever got this high in the BIS which is the Central Bank of the Central Banks and controls the world’s money trade. While the stroke of $26 Billion FCNR borrowing helped to bail out of the currency problems, Dr Rajan also had other achievements of being a People’s Governor – who is regarded as a charming annotator of complicated matters in Economics by housewives and students alike. He is the aspirational equivalent for the middle-class who rise to the top by dint of their hard work and initiative and then care less for appeasements of the high and the mighty. But like some of the blindspots that Marshall Goldsmith highlights in “What Got you here, won’t get you there”, there are lessons for all of us to see where Rajan erred and where he succeeded. Life is not about always working with people who are agreeable with us and our actions. Especially in public policy making where a lifetime of wisdom may not help you navigate the troubled waters of Policy making. Being a prescient professional and blessed with huge intellect, wit and charm, Dr Rajan will go back to theUniversity of Chicago to teach but hopefully, these 1000 odd-days of rigorous and studious real-world responses intermixed with a lot of inflexibilities of the mind and impulses that come unrestrained to a young achiever will have taught Dr Raghuram Rajan more. Those will prove handy one day, another time as he dons more hats in public policy making. Wishing Dr Rajan a smooth transition out of the RBI before he is warmly welcomed in the University of Chicago.
—-Chanakya