Millennium Post

Rajan lives upto reputation

It is extremely unusual of a governor of a country’s central bank, who normally carries an image of a conservative tough-talking and always word-watching stiff-necked super monetary regulator, to constantly making public statements and sermonising the government! Why is the present Reserve Bank of India (RBI) Governor, Raghuram Govinda Rajan, handpicked for the coveted job by ex-finance minister Palaniappan Chidambaram and former Prime Minister Manmohan Singh, acting flippant often to the consternation of the new government, his inheritor? Behind his well-groomed formal appearance, Rajan appears to be  the most informal and accessible person promoting a trait that is generally considered unsuitable for the high post. During this month of September alone, the RBI governor has made nearly a dozen public statements, several of them being directly critical of the government. His statements also rendered unsolicited advises to the government. And, at least one of them had a spine-chilling impact on the Indian business community, known for using the historically high debt-equity ratio norms to their best advantage to multiply personal wealth at the cost of lenders to their interconnected group enterprises by fudging accounts and creating false mortgages.

Sample the RBI governor’s public outbursts in the first three weeks of September, he had exalted ‘willful defaulter’ tag as a ‘powerful weapon’ for creditors in obvious reference to the tag brewery baron Vijay Mallya recently received from the United Bank of India. The statement is a clear ‘go-ahead’ signal to banks to go after those other big interest and loan repayment defaulters. Some 30 big industrial houses account for over 50 per cent of stricken loans for which repayment schedules are almost regularly restructured by their providers, often in connivance with corrupt bank management.

Rajan had told a group of his overseas hosts in Chicago that ‘grand, big picture reforms in India may take some time’ despite the fact that the new government within days of its assuming power relaxed FDI rules in sectors such as defence, insurance, real estate and railways and is trying to open up several other areas to substantial foreign investment. On the need for lowering bank rate after the WPI fell to a five-year low at 5.3 per cent earlier this month, the RBI governor’s flat response was he ‘will lower interest rate only ‘when feasible’. Bank lending rates in India are among the highest in comparable economies. On 14 September, the RBI governor went to the extent to ask the government to ‘free diesel prices at the earliest.’

But nothing was more damaging than his two notes of caution to banks, which he directly regulates, that (a) to be careful about the ‘Jan Dhan Yojana’- the prime minister’s biggest pet project so far to ensure universal ‘financial inclusion’ of Indian households – warning that people can open accounts in different banks using different identity documents such as PAN card, Aadhaar Card, Voter ID, ration card, electricity or phone bills, etc. Once again, the RBI governor cautioned banks against running after ‘Jan Dhan Yojana’ numbers. This ignored the fact that the scheme has helped fund-starved banks mop up over Rs. 370 crore as deposits from some four crore first-time account holders.

The prime minister himself has set a target of 7.5 crore accounts to be opened by banks before 26 January 2015, at its launch programme during which Narendra Modi personally thanked Rajan for waiving the KYC requirement for aspiring bank account holders for a period of six months. The RBI governor shared the podium with the prime minister and a handful of other dignitaries including the finance cum defence minister, minister of state for finance and commerce and secretary to the department of financial services during the Yojana launch. Encouraged by the RBI governor’s public comment, Uday Kotak, chairman of Kotak-Mahindra Bank, too cautioned the banks that though Jan Dhan Yojana is ‘visionary’, there are challenges in its execution.

Rajan’s last two remarks are clearly directed at the government. Further, on 20 September, he frawned on subsidising foreign education loans for overseas studies by banks under the ‘priority sector lending’ segment. Earlier, he had advised the government on the need for limiting ‘reliance on foreign debt’ as it adds to the current account deficit burden. Interestingly, following the RBI governor’s statement, finance secretary Arvind Mayaram, who was at the G-20 meet at Cairns, Australia, clearly stated that the government is unlikely to change the 2014-2015 borrowing target in view of the stiff tax collection targets and the possible need for some fresh fund mop-up to ensure that big-ticket projects are not made to starve of cash, like in the past two years. To be honest to Rajan, whose completion of 365 days as the RBI governor got more positive media publicity than the completion of the Narendra Modi government’s 100 days in office, not all his public remarks and critical advises to the government are without substance. If anything, they reflected his concern for financial prudence that he holds the uppermost as the governor of the Reserve Bank and also, maybe to a good extent, his immaturity to openly vent his strong personal feelings on such sensitive matters.

It may be recalled that Raghuram Rajan headed a committee designed after his name by his former mentor Chidambaram that advised the government in 2008 to set up a super regulatory autonomous authority called ‘Financial Stability and Development Council’ (FSDC) to deal with macro prudential and financial regularities in the whole financial sector of India with the objectives of maintaining financial stability, financial sector development and inter-regulatory co-ordination along with monitoring macro-prudential regulations of economy.

The super authority, having largest number of representatives (3) from the finance ministry was the brain-child of control-freak Chidambaram to oversee the functions of the RBI, SEBI, Pension Fund Regulatory & Development Authority (PFRDA), Forward Markets Commission (FMC) and Insurance Regulatory & Development Authority (IRDA). While the Rajan committee had provided shape to the controversial super financial and monetary control regime, it fell on present President Pranab Mukherjee to accept its recommendations in 2010 when he briefly held the finance portfolio, apparently at the behest of the them prime minister.

Maybe, Rajan thinks himself more like a FSDC boss than the less powerful RBI governor. Or, maybe, the former chief economist of the International Monetary Fund (IMF) just doesn’t care about how his target audience in the government and outside reacts to his critical observations and concerns. IPA
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