Millennium Post

Society must raise tolerance to wealth instead of prohibiting its use: Rajan

Society must raise tolerance to wealth instead of prohibiting its use: Rajan
Calling money a “great equaliser”, Reserve Bank Governor Raghuram Rajan on Friday called for raising society’s tolerance towards wealth rather than prohibiting its use. Rajan, who recently drew criticism for comparing Indian economy as ‘one-eyed king in the land of blind’, also said he has no problem with India’s growth, but it can do better. “In a free market, all it takes to buy what you want is money. 
You do not need a pedigree, a great family history, the right table manners, or the right fashionable clothings or looks,” he said in his convocation address at the Shiv Nadar University here.  

“It is because money has no odour, because it is the great equaliser, that so many people across history have been able to acquire resources and invested them to make the world we live in.” Making it easier for Dalits to start business can do more to social status than any reservation, he noted.
“Rather than prohibiting the use of money and wealth, let us think about increasing society’s tolerance for its use,” he suggested. Lamenting that income inequality within countries is on the rise, he said the need of the hour is providing effective access to school and healthcare, a non-discriminating job market with many jobs and equal opportunities for advancement regardless of gender, race or background.

“Indeed, making it easy for Dalits to start businesses may do more for their social status because money empowers (more) than many other forms of affirmative action,” the governor said. On the country’s GDP, he said: “I have no problem with India’s growth. It is doing great. It could do better”. India has emerged as the fastest growing large economies in the world with a growth rate of 7.6 per cent in 2015-16. It is projected to expand by 7.5 per cent in the current fiscal.

Rajan said that there is a strong link between society’s support for free markets and the fairness with which wealth and opportunity are distributed among the population.  “Unfortunately, even while inequality between countries is diminishing today, inequality within countries is increasing. Today, even well-run market economies seem to be favouring those who already have plenty,” he said.

This, he felt, is because skills and capabilities have become much more important in well-paid jobs, and those born under good circumstances have a much better chance of acquiring the same. “The winner-take-all nature of many occupations, where a few of the most capable entrepreneurs and the best workers take most of the income, accentuates the value of early childhood preparation and hence, the benefit of being born to the right parents in the right community,” he said.

The governor said income inequality is on the rise, with some having colossal incomes and others worrying about the next meal. “What can we all do to restore faith in markets? We have to work to provide effective access to schooling and healthcare for all, a non-discriminating job market with many jobs, equal opportunities for further advancement regardless of gender, race or background,” he said.

These measures will “increase the perceived legitimacy of wealth and society’s willingness to broaden the areas where it is spent,” he said.  To students, Rajan’s piece of advice was that they should earn by creating perceptible value and, equally, spend to create value. “Not only will your work be more enjoyable, but you will strengthen the economic freedom we sometimes take for granted,” the governor added. 

Given the importance of broadening access to all the deserving, Rajan emphasised on the need for affordable educational degrees. “We also should make sure unscrupulous schools do not prey on uninformed students, leaving them with high debt and useless degrees,” he added.

Asked to explain the “real causes” of ballooning bad loans at public sector banks last weel, Rajan put the blame on “overall economic downturn”, among other reasons, in his submission to the key Parliamentary Panel.  “While some of the reasons for recent spurt in NPAs could be subset of those indicated by Narasimham Committee, the level of stressed assets are seen in the context of overall economic downturn”.

Rajan listed six primary reasons for spurt in stressed assets that have been observed in recent times. These included domestic and global economic slowdown, delays in statutory and other approvals especially for projects under implementation and aggressive lending practices during upturn as evidenced from high corporate leverage. Other reasons cited by Rajan were laxity in credit risk appraisal and loan monitoring in banks and lack of appraising skills for projects that need specialised skills resulting in acceptance of inflated cost and aggressive projections.


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