After claiming the scalp of RBI Governor Raghuram Rajan, ‘maverick’ BJP MP Subramanian Swamy has now trained his guns on Chief Economic Advisor Arvind Subramanian. In a series of tweets on Wednesday, Swamy basically accused Subramanian of batting for US pharmaceutical interests and helping the Congress party harden its stand on the Goods and Services Tax Bill.
But this time around, the Government was quick to defend the CEA and douse the fires. After all, the government got a lot of flak, and rightly so, for not coming quickly enough to Rajan’s defence.
After Swamy’s extraordinarily vicious and personal attacks on the RBI Governor, all the government said, that too after several days, was that the decision on the RBI Governor’s appointment was an ‘administrative’ one. That this stand provided little comfort to Rajan was clear from the fact that he announced his decision to quit well before his term came to an end in early September.
Salvaging image
The Government was happy as long as Swamy was going after the Congress party on the AgustaWestland Defence deal and Robert Vadra’s land deals. But with Swamy beginning to focus his cannons on government officials, it clearly getting embarrassing for the government, and it will be interesting to see how the latter deals with Swamy in the coming days. The Congress party has been quick to remark that Swamy’s real target is Finance Minister Arun Jaitley.
After all, another important government functionary, NITI Vice-Chairman Arvind Panagariya, was also based in the US till a couple of years ago, teaching in Columbia University.
After Rajan made clear his intention to step down when his term ended, the government on Monday further liberalised foreign investment rules in several crucial sectors such as aviation, Defence, food and retail, sending a clear message to foreign investors that it was business as usual. Though this move was always on the government’s agenda, the timing was interesting as it desperately wanted to contain the damage done to its foreign-investor-friendly image by Rajan’s exit.
Rajan’s legacy
Though reams have by now been written on Rajan’s record as RBI Governor, and some of the commentary has been embarrassingly hagiographic, it is still worth recounting some of his important contributions.
When he took over in September 2013, India was seen as one the ‘fragile five’ of the world. Rajan painstakingly fought inflation, bringing it down from 10 per cent to 5 per cent, stabilised the rupee, shored up forex reserves and calmed the markets. Now one could quibble about the importance of foreign portfolio investments or ‘hot money’ to India but, having hitched itself to the financial liberalisation bandwagon more than two decades ago, there’s little point in doing that.
To me Rajan’s most important contribution was the Asset Quality Review of the public sector banks, where he started the process of cleaning up their balance sheets to get rid of bad loans. He stopped the practice of corporates rolling over their outstanding loans on easy terms and forced the banks to write off their bad loans.
This, of course, led to huge losses being reported by the PSU banks but, for Rajan, this was short-term pain well worth enduring. The corporates, used to ‘evergreening’ their loans, must surely have been peeved by this. For this, Rajan must be given credit for fighting ‘crony capitalism’.
Continuity at RBI
But though Rajan’s imminent departure raises questions about the autonomy of institutions in India, to say that his exit will lead to long-term damage to the economy, as suggested by some commentators, is going too far. If Rajan’s successor takes forward and sees through some of the important initiatives put in place by him, and for the moment there is no reason to believe otherwise, the economy will be on even firmer footing.
For good measure, Rajan, tongue firmly in cheek, said on Wednesday at an Assocham meeting: “I feel that in the last few days I have read a lot of my obituaries. I’m still here for two-and-a-half months in this job. And after all, I’m still going to be somewhere in the world, probably a lot in India. So don’t write me off.”
So in the coming days, it will be interesting to see how the BJP deals with Swamy. As a colleague of mine wryly remarked, thanks to the likes of Swamy, TV channels and newspapers have plenty to talk and write about.