We failed to keep Rajan

The world economy has entered an unprecedented era of low interest rates across the board. Global growth stagnation and low inflation set the stage for this new rate regime.

 For anyone hopeful of things taking a turn for the better due to cyclical forces should remind themselves of the Japanese experience with stagflation. 

The British bank was the only big bank of the world that had managed to stay clear of the zero/negative rates region but the recent referendum has made a rate cut a matter of time.

 The global political climate has also seen a swing towards the right, caused by and leading to a steep rise in terrorist activities around the world. There are various cyclical causalities at work here including growing xenophobia. 

The relation between the world’s political landscape and its economy is the other undeniable cyclical relation. The economies of the world have struggled, hitting the lowest class the hardest. The loss of global wealth and jobs in the last decade has hurt those whose homes and health were at stake more than the class that is forced to own one less luxury home. 

The disgruntled masses have swung towards anti-establishment views fuelled by economic and security threats as is evident by the advent of Trump or the equally unexpected Brexit referendum. People are ready to bear sizeable economic losses to remove a political system that has swiftly lost their trust. 

This kind of political turmoil is unprecedented and the uncertainty it has brought is causing a massive flight to safety, which means an investor is ready to keep their money in safe bonds no matter how far the rates drop putting further downward pressure on international rates.

 Capital for business is drying up everywhere and in a world that is more economically intertwined every passing day, whether one likes it or not we are all at the end of the day in one sinking ship. This is a unique political-economic crisis and we have no precedents to approach a solution. 

The question at hand though is one of internal reflection and we need to assess our decision as a nation to not vehemently defend our best academic thinkers’ freedom of opinion. We have time and again chosen to be dictated by the same identity insecurity that is characteristic of the Trump phenomena and the arguments put forth by the leaders of the “leave” campaign such as Nigel Farage in Britain. 

Raghuram Rajan took the responsibility as the RBI governor and has done a commendable job, to say the least. Before I dive into the easy defence of Rajan’s acumen as an economist, let us first consider the role he played as an activist and the treatment meted out to him by the nation. 

There are no two ways about it, Rajan took positions no one else could, with the Government and the Crony Capitalists. His unwavering concentration on controlling inflation meant a hawkish monetary view.

 A government that came to power on the grounds of promises of development and economic rewards was hoping for a debt-fuelled swelling of growth numbers. Rajan refused to buckle under pressure from the government.

 He strove to make the rate-setting process an academic and objective one by setting up the Monetary Policy Committee that will bring transparency to the process. He was making structural changes in addition to his functions as the head of the Bank. 

He locked horns with the corporate as well, openly criticising the likes of Vijay Mallya, cleaning up the banks’ bad loans and establishing accountability in public banks was important to him. 

The corporates in our country have been taking big loans and defaulting at will, the cost of which is borne by every other borrower who doesn’t have the political or financial clout to evade their payments. We were paying Mr. Mallya’s loan, the poor of an impoverished nation were buying our businessmen their lavish homes, jets and yachts. Rajan was making head way in changing that. Swamy’s main criticism of Rajan was that he isn’t “mentally Indian. 

That, if at all, is his biggest strength. He, unlike anyone else we could have chosen, was fearless. It is also important to remember that there are very few who enjoy the attention he did in national discussions and so even if the successor of Rajan has the ethics and courage to speak his/her mind there is no question about the efficacy of those words being far inferior.

 A global name, Rajan was the face of India in the economic world and perhaps the only credible voice to present our concerns, a voice we will lose when he steps down from the position of Governor. 

The central banks of the world are struggling for answers to the challenges I have previously described and the creativity of their chiefs are being put to the test. India, as a developing nation, has managed to maintain a healthy growth and inflation rate but the world is at its peak of economic uncertainty.

 In times like now, a nation needs a Central banker that has both, the intelligence to see what no one else can see and the courage to hold his own when faced with head winds.

In its most turbulent time in memory, save for the 2008 crisis, the United Kingdom’s Bank of England is key to the future of its economy. The BOE head Mark Carney is Canadian and continues to enjoy the trust and respect of most in the country even in a time of such turmoil.

 How is it then that a nation as diverse as ours has not only allowed people to define its identity but question its well-meaning leaders on the basis of that identity. A man’s Indian-ness is questioned because he applied for an extension on a Green Card and the people who he has been serving failed to defend him. Rajan is amongst the smartest economists of our age. 

A Chicago Booth professor, he is the youngest chief economist the IMF has had, and a member of the group of thirty. India couldn’t have asked for someone better qualified for the job. The speculation will always remain about the nature of the relationship between the man and the government. 

It is, however, important to note the evident apathy of the government. In an unprecedented move a search committee was put in place by the government to advise on who the next Governor should be, the PM failed to come to Rajan’s defence till only very recently as his own MPs belittled Rajan and there were no attempts by either the Prime Minister or the Finance Minister to keep Rajan from resigning. 

It is clear that the government and the rich that enable them, have for all practical purposes ousted him. The silence from the country’s people and its leading thinkers and commentators is unfortunate and the consequences will be on our hands. In a time when the world struggles to find answers, we had ours, and we made him leave. Let us hope our economic stability doesn’t leave with him.

The question is not about one person, it’s about our priorities and a political paradigm that not only is ineffective but inhibits others who wish to contribute. We need to think beyond ill-constructed national, ethical, and cultural identities that enable us to strip people of rights and shame those who have nothing but the best interest in mind. 

Rajan was good and his departure, while detrimental, will not materially change the course India is on. But we need to prioritise what is important and have to stand with nation builders even as our politicians seek to exploit our identities. 

We need to become a thinking nation. A nation that allows everyone to celebrate their identities instead of forming a majoritarian view to the exclusion of all else. A nation that does not decide what others will eat, wear or feel. A nation that knows its best interests and refuses to be swayed by emotions.

With a B.Tech from IIT Bombay, the writer is student at MIT Sloan School of Management, USA. (Views expressed are strictly personal.)