Millennium Post

He is the man India needs

Raghuram Rajan is potentially great news for the Indian economy. Anyone who talks about ‘Saving capitalism from the capitalists’ has to be good news, for humanity per se. The IIT, IIM educated man is an intellectual of a relatively high calibre. Where he scores however is his better understanding of capitalism’s ills and where capitalism’s ‘fault lines’ are. He has rightly championed the cause against monopolies and oligarchists – and that’s the key reason why he is the man India needs. Although ex-IMF people aren’t very easy to trust, the fact that from all his writings, one gets absolutely no feelings for crony capitalists, is what makes his presence far more exciting than the presence of most others before him. Perhaps before finishing his completely useless and disastrous tenure, Manmohan Singh without realizing has done India a great favour.

Amongst Raghuram Rajan’s bigger achievements is not just his ability to forecast the 2008 crisis, but also his competence of being sharper than others in understanding its causes and giving a better prescription to come out of it. Raghuram argued that the flaw was on the supply side, that developed economies needed to free themselves from the bottlenecks of protectionism, and that they also needed to focus on giving a bigger thrust to entrepreneurship at a smaller scale. He is right to a large extent, and yet, here is where he goes wrong in his analysis. It’s a fact that almost every earning citizen in the American and European economies has the next 15 years of income already spent through some or the other installment scheme on homes, cars, education et al. So stimulating the demand in these economies is an impossible task in itself. Add to that the fact that the state of having material aplenty has reached that psychological threshold in these economies where making consumers buy more is becoming tougher by the day.

Thus, the real way for American and European companies to grow is to do to the African, Indian and Chinese labour force what Henry Ford once did to Americans. Pay them more so that they can buy American and European products and make these economies grow in turn – in simple words, develop these markets. This is inclusiveness at a global level, the real globalisation of the world – I would call it global humanitarianism. The sooner developed nations, and their more human faces (the likes of Krugmans and Rajans) realise this, the faster these nations will spring back and so will the world.

Although I think that Raghuram Rajan’s prescription for Western revival has flaws, I also believe India is a different ball game. We are where the West was decades back; and yet, at the helm, we require the key economics of having your heart at the right place. That’s precisely why Raghuram Rajan excites. His academic understanding of how free markets are beneficial, the important and visible role of governments in such free markets, at the same time his scathing attitude towards how the same governments are subject to being influenced by big private players, are what India needs at this point of time. The need of the hour in India is to protect the free market from powerful and oligarchic private influencers, so that benefits of the market economy reach the masses and don’t remain limited to a few. His latest act of doing away with pre-2005 notes proves the point, and to my mind, the move has great potential. Given the fact that he has no sentiments for crony capitalists, this actually is one of his initial big moves to entrap and finish off a large chunk of black money. Admittedly, till now, he has maintained that his move is not intended to flush out black money. Yet, the fact is that people with their huge stores of black money will no doubt find the going tough, as estimates say that pre-2005 notes in high values of 500 and 1,000 make up about 20 per cent of the total black money in circulation. Clearly, for those with black money inside the country, it will be a herculean task to identify and exchange this 20 per cent.

As of now, the way the announcements have been made, it seems that it is still possible for one to freely go to banks and exchange the pre-2005 notes. But to me, this chance should be utilised to either make unaccounted cash impossible to exchange (the cash could be usurped and destroyed, if an exchange is attempted – at least 20 per cent of black money thus could be made useless) or make people reveal their black money, by perhaps offering to make it white by levying a 20 per cent tax on the disclosed amount. Without doubt, this is too big a chance to let go off, and especially now since the deed is already half done. Who knows, this act may even end up giving the current government the much needed boost just before elections! Irrespective, one thing is certain: Raghuram Rajan is making things exciting, and it need not be great news for the crony capitalists of India!

The author is a management guru and director of IIPM think tank
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