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Importance of being Raghuram

This column was first published on 29 August 2012: after Raghuram Rajan was appointed the chief economic adviser. Now that he has been named the next RBI governor, there are two things in this piece worth a note: he did go with the pro bono advice of staying away from TV, and the penultimate paragraph did foresee the possiblity of him succeding D Subba Rao...
For dummies, and those who just landed from the moon, India has a new chief economic adviser (CEA). This is a job held by the likes of I G Patel, Shankar Acharya and Deepak Nayyar, not to mention prime minister Manmohan Singh himself. His name is Raghuram Rajan. He’s an IIT-ian who then went to IIM-A and then into heavy-duty economics. The journey included a professorship at Chicago’s Booth School and the job of Economic Counsellor (popularly: Chief Economist) of the International Monetary Fund (IMF). In between, in end 2005, this entailed an intervention at Jackson Hole, where the world first heard the words, ‘we should be prepared for the low probability but highly costly downturn’.  

The prescience was ignored, something (as noted by the Economist) IMF graciously conceded in the following words, ‘Despite the importance of the Economic Counsellor’s position, there was no follow-up on Rajan’s analysis and concerns – his views did not influence the IMF’s work program or even the flagship documents issued after the Jackson Hole speech.’ Now, the cool thing about our new CEA is that he’s not even 50 and looks even younger! His book, Faultlines: How Hidden Fractures Still Threaten the World Economy, was the best business book on FT and Goldman Sachs lists for 2010. One can almost see the business channels relishing at this heady cocktail of economics and sound bites. Ditto for business journals interspersing lovely pictures with the cheekiest of quotes.So, pro bono advice: stay away from television. This is India. The path between broadcast trucks landing at the convenience of your home and utter disaster is really very, very fine.

That said, here’s the context. There are too many economic talkers in this government already. From Montek Ahluwalia to C Rangarajan to Anand Sharma, not to mention P Chidambaram himself. Each one finds the bouquet of sound-bite soldier’s gun mikes far too irresistible. Each time they’re ambushed, they say the same thing again. Yawn! This was equally true of the President of the Union while he was FM. Result? Each of these utterances, often unintentionally, have confused the market thoroughly. Do we need the CEA to add to a discredited cacophony? Perhaps not. Much as we like the novelty of a modern and urbane voice in the economic discourse, would a six-month moratorium on lectures and impromptu bites or even Press Information Bureau-style crisis conferences over tea in plastic cups be too much to ask! For an embattled government, holding back a star player wouldn’t be easy. But six months could be valuable time for Rajan to transit from his professor’s perch at Chicago or shed the Canali suits of the IMF days! This would also be a valuable time to deep dive and integrate into off-the-record conversations with India’s bureaucrats and ministers, described by Rajan himself in his convocation speech at the Indian School of Business this year as, sui generis in their articulation of the Indian reality, deeply conscious of keeping the diaspora, the states and the private sector away, for reasons in part measure out of intellectual laziness and partly self serving. Such truth is best articulated while you’re speaking from 33,000 feet. This is terra firma. This is about working with an opiniated minister like Chidambaram, who despite being only the line minister and the fact that Rajan has been (and continues to be?) an honorary advisor to the PM, would like to hear the best ideas first, not trial balloons on CNBC or NDTV Profit, or even the Financial Times or the Wall Street Journal.

Incidentally, being the source of bright ideas is the unwritten job that makes or unmakes a CEA. Manmohan Singh, himself, earned his spurs with then prime minister Indira Gandhi when she was pitted against the Jayaprakash Narayan war cry against inflation. There’s a honey moon period to do that. If Rajan misses that, as some would argue Rakesh Mohan an earlier incumbent did, or as Kaushik Basu the immediate predecessor did, failing to get past Amita Paul, gatekeeper to Pranab Mukherji’s inbox, all that’s then left to do is to write the annual Economic Survey. It’s a document that says all the right things ailing the economy, but it’s three-minutes of fame is overshadowed by the Union Budget. Even here, the CEA is traditionally the author of the first draft of what the FM actually reads out, and finance ministers like Chidambaram and Mukherji are known to have sidelined their CEA once too often. Which brings me to the point about why Raghuram Rajan is so important for the Indian system. He is, first and foremost, a voice of reason and credibility among Global Inc. stakeholders. He represents the return of a true-blue international econocrat (Kaushik Basu didn’t work outside academia). It’s a rich culture that we’ve squandered over the years, a far cry from the days that working in government attracted prodigious talents such as Bimal Jalan, Shankar Acharya, Parthsarthy Shome, Rakesh Mohan and Montek himself.

So, if he plays his cards well, if he listens a lot before he speaks, Rajan’s presence can truly benefit India’s sagging fortunes. Very little point will be served if he, for example, starts saying all the right things like he did at the ISB convocation or what he ably said the launch of a book in the honour of Manmohan Singh.

The TV anchormen will jump in joy, but thereafter Rajan will be written off as one more failed import. Even more important than being CEA is where Rajan could be headed next. The story goes that in 2008 when the search was on for a governor of India’s RBI to replace Y V Reddy, Manmohan Singh, received a pressing recommendation from Montek. That man was Rajan. Manmohan was impressed, but he thought against someone who hasn’t worked in India. So, he let authorised an offer for Deputy Governor, a position Rajan politely passed over. It is Montek who then found a compromise in letting Rajan be an advisor to PM, albeit concurrent with his raft of academic responsibilities. Somethings Rajan must have said must have stuck, which is what explains his accession to the CEA’s job.

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Governance Now
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