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Rajan’s departure: A symptom of government’s unwillingness to suffer strong institutional chiefs

By Dr. V. Raghunathan

If dignity could be personified, it would have to look like Raghuram Rajan. And if ever proof was needed of this assertion, the way he has handled the entire storm surrounding his continuation in the highest office of the RBI, and decided to move on bears this out.

At no stage through his term did he need any testimonial for his achievements in the office; it was there for all to see, if they chose to see it. Virtually the entire country has been one in his support. If there was one pathetic individual who disagreed, it was a certain Subramanian Swamy, whose only intellectual claim to fame today is perhaps his one-time association with IITD and Harvard University, and who has changed more political parties than a certain lady accused of murdering her daughter may have changed husbands. In fact, his very entry into the higher house of parliament may have been to keep him going after the ruling party for one or the other reason, and perhaps in gratitude, he has put his clumsy weight behind the ouster of a Central bank chief who was perhaps a little too inflexible for the convenience of the government.

Did he receive support from the PM, even if the PM never actively criticized him? Well, the PM called the reappointment “an administrative decision to be taken in September, 2016″, when Rajan’s first term is due to end. Excuse me. Do we consider the appointment to the office of the Head of the Central Bank of a country a mere administrative decision? That he had a foot in the American academic system and that his family was dividing time between the two countries was a well-known fact all along. Wasn’t he entitled to know at least three months in advance about whether or not he was going to continue in the office so that he could plan his personal life, quite apart from his professional life?

The PM of course played the political card and ducked the hard call by not rapping Subramanian Swamy on his knuckles for his misplaced and disproportionate criticism of Rajan. As to whether the country’s inflation was low enough to drop interest rates further, or whether the currency was strong enough for exports and whether or not the public sector banks needed greater discipline, well, I and it seems much of the country, was more inclined to believe Rajan than any of the politicos and other lesser mortals.

But one recurring theme that comes out clearly in the context is the unwillingness of the government to suffer strong institutions or Chiefs of institutions. Whether it is the appointment of the very Education Minister, or the NIFT chief, or CBFC chief or FTII chief, or for that matter the dilution of the powers of IIMs—that’s one underlying theme difficult to ignore. And this disease may in fact be the most worrisome.

Of course, it is nobody’s case that this is the end of India’s economic growth, as Swaminathan Aiyar brilliantly wrote in the Economic Times not too long ago. Of course the capital market, the currency market and the money market may take a nasty fall for a while and in due course limp back to normal and move on. Sure, a downgrade by S&P may not cause India to be obliterated from the international map. But economists worldwide have made their opinion of Rajan and the impact that his departure may have on the credibility of our economy, known widely and clearly time and again.

Unfortunately, the brunt of it all would be faced not only by the next RBI Governor who may find the boots left by Rajan too big to fill, but the country as a whole, at least in the short term, when we are bound see the flight of capital, and not just a slowdown in capital inflows.

Corruption, red-tape, incompetence, pathetic indices on health, malnutrition, poverty, pollution, skill levels, quality of education, difficulty of doing business, open air defecation and much else besides have all made us a country teetering at abysmally low level of equilibrium. Amidst it all, Rajan’s presence at RBI was a signal that at the very least, India takes its economic management seriously. Unfortunately, that hope too is extinguished.

And yet the thin skin of the politicos, who are happy with extremely incompetent people heading the most important institutions, was punctured by the straight talking Governor’s ‘Andhon mein kana Raja’ remark. And this when the good Governor had stopped short of adding that even our so-called 7 per cent growth rate may in reality have to be discounted by our population growth rate of nearly 1.6 per cent, so that our real growth rate may in fact be a mere 5.4 per cent on one of the world’s lowest per capita incomes! The truth has been that not only was Rajan right about the one-eyed king, but even that one eye has been cataract ridden.

In the end, Rajan’s decision to quit seems hardly surprising, even if sad for the country, given his innate dignity. In any case I am happy that he is going back to where his intellect and stature would be better valued, with his head held high. If he has been guilty of one fault, it is not telling the PM and the FM the news they would want to hear but telling them what they and the nation ought to hear.

I am privileged that I had the honour of being his teacher at IIM, Ahmedabad back in the 1980s.

DISCLAIMER : Views expressed above are the author’s own.

This article first appeared in Times of India.

Dr. V. Raghunathan
Dr. V. Raghunathan

Written By Dr. V. Raghunathan

V Raghunathan is Director, India campus of Schulich School of Business, York University, Toronto & a corporate CEO. He is a former professor of IIM, Ahmedabad and former president of ING Vysya Bank. He is an adjunct professor at SDA Bocconi, Milan & Schulich School of Business. He is also an author and a columnist, with over 12 books and 500 papers and articles. His latest book is Beyond the Call of Duty (Harper Collins, 2015), others being Duryodhana; Locks, Mahabharata and Mathematics; Don’t Sprint the Marathon – from Harper Collins, and Ganesha on the Dashboard; Corruption Conundrum; and Games Indians Play – from Penguin. He is listed among the top 50 global Indian thinkers of Thinkers50.

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