RAjAN is MOre Pr thAN PerfOrMANce

There has long been evidence of a deeply masochistic streak within sections of the public in India, especially those at the upper echelons of society. An example was Henry Kissinger, whose language while referring to India during conversations with President Nixon on the subject were often unprintable. Kissinger connived together with Pakistani dictator Yahya Khan and his associate Tikka Khan in committing the most heinous acts of genocide against the defenceless people of “East Pakistan”. The National Security Advisor (and later Secretary of State) carried on the war in Vietnam to the point of exhaustion, supervising a retreat of US forces under the same conditions that he could have secured three years previously, and with 780,000 additional Vietnamese lives being spared. Kissinger and his boss Nixon (whom he outrageously flattered while they were together, while mocking him in private) bombed Cambodia and Laos to dust, killing more than 400,000 in the process. Such deeds were deemed by the Nobel Committee to merit the Peace Prize, surely an award that future generations would regard as a macabre joke by the Committee. And yet, Kissinger ensured through his writings and the giving of selective information and access to chosen historians that he became seen not as a butcher, but as a statesman, not as an individual who had masterminded policies which led to defeat for the US military at the hands of North Vietnam, but the man who brought peace, no matter that for millions, it was the peace of the grave. Kissinger is not alone in having acolytes dress up the truth in a form unrecognisable as such.

In India, we have during these past days witnessed a similar outpouring of tears and bile on the subject of Reserve Bank of India Governor Raghuram Rajan. Those who regard the man as being responsible for much of the NPAs clogging the banking system because of the high interest rate regimen he imposed are being condemned (without a shred of evidence) as “representing big corporates”. The Chicago School academic turned Central banker is typecast by his admirers (mostly those who are alumni of US universities and are working in the financial industry) as a slayer of crony capitalism, when the reality is that Rajan did almost nothing to bring major defaulters to book. Instead, he presided over “reforms” that have had the effect of kicking the default can down the road, even while standing by while commercial banks wrote off tens of thousands of crores of rupees in debt without any visible effort at enforcing accountability on those responsible, including bank directors who shamelessly lobbied for loans to those who were simply looters posing as businesspersons.

Who will enforce accountability within the higher ranks of the RBI itself? Financial circles point to a former Governor who had as his (albeit informal) closest advisor the manager of a US-based fund, who made a killing in the market after the RBI raised repo rates to a penal level, as advised by the fund manager to his buddy, who was the RBI Governor at that time. Incidentally, this gentleman still has access to the highest levels of the RBI, picking up and using insider information in a way that would have earned him Rajat Gupta’s fate in the US. Rajan placed inflation targeting and only inflation targeting at the centre of his policies, fixing an arbitrary rate of 4% Consumer Price Index inflation to be reached before interest rates could get significantly reduced. Initially, he had opted for wholesale prices, but switched when these turned negative. Rajan has been determined to inflict pain on the economy, and on sending millions out of work because of high interest rates and an absence of credit caused by the RBI’s policies. In India, what is needed is growth, and even if a much higher growth rate results in higher inflation, the suffering caused will be much less than high interest rates leading to sluggish growth. The NDA government has been very accommodative of the RBI Governor, giving him high level access and not exerting itself to reverse policies which cause low growth while having zero effect on inflation, which in India is based on supply constraints and commodity prices. However, judging by the cacophony of wails at Rajan’s impending exit, a bystander may be forgiven for believing that oil and other commodity prices have fallen sharply because of the RBI. The fact is that Raghuram Rajan is less performance than he is hype, and that his record will be judged as a lost opportunity to nudge the economy towards the double digit growth needed to banish poverty.