Raghuram Rajan is back in news. The former RBI Governor is in India now to promote his new book, I do what I do . Though he says it is not a “tell-all” book, there is one subject which everyone will be keen to know Rajan’s views on — demonetisation.
Though I have only read extracts of the book, it does give a glimpse of Rajan’s thinking on the subject. As he mentions, the only time he spoke about demonetisation was during the Lalit Doshi Memorial lecture in August 2014, and that too in response to a question. His answer then was that scrapping high-value notes would not be a great way to combat the menace of black money.
Again, in the book, he says that in February 2016, when asked for his views on the subject by the government, he said that the costs would outweigh the benefits despite its long-term gains. He also said there are better alternatives to achieve the objectives set out by the government.
Raising red flags
He even prepared a note, as asked by the government, where he put forth the potential costs and benefits of demonetisation, and the alternatives that can be used to achieve its objectives. The note even “outlined the preparation that would be needed, and the time that preparation would take. The RBI flagged what would happen if preparation was inadequate”.
Rajan then goes on to say that a government committee was set up to look into the issues.
It is mystifying, then, as to why the government went ahead with the note ban despite the red flags raised by Rajan. In this context, it comes as no surprise that when Rajan decided to quit and go back to the academic world in Chicago, the government quietly accepted his decision. There seems to have been no effort on the government’s part to persuade him to stay.
But all this is speculation and one will never get the real picture of what went on behind the scenes — who made the decision on demonetisation? Who were privy to it within the government? When did the RBI Governor come to know of it and why did he acquiesce to it?
Rajan obviously cannot provide answers to these questions as he had already left the RBI by then. Maybe we’ll have to wait for Urjit Patel to write a book.
Crony capitalism, corruption
In Rajan, India had one of its most interesting and colourful RBI Governors. He was outspoken on issues related not only to the economy, but also politics and political economy. In the Lalit Doshi lecture, he spoke at length on crony capitalism and shared some interesting insights.
On the question of why corrupt politicians thrive, he said, “The tolerance for the venal politician is because he is the crutch that helps the poor and underprivileged navigate a system that gives them so little access. This may be why he survives”.
He argues that the government’s pathetic record in providing public goods for the poor is the main reason why the crooked politician survives, as it is he who acts as a bridge between the poor and an apathetic state. It is this corrupt politician who makes “the wheels of bureaucracy creak”.
During the same lecture, Rajan postulated an interesting hypothesis about the persistence of crony capitalism and corruption in India. He says that the poor need the crooked politician to provide jobs and public services. The crooked politician needs the businessmen to provide funds for fighting elections. In a quid pro quo arrangement, the businessmen, for funding the crooked politician, demands government contracts and access to resources at a cheap price from the politician, which he is more than happy to provide.
So it’s all tied up in a neat vicious circle and is very hard to break.
To break this cycle, Rajan says, “The answer is to either improve the quality of public services or reduce the public’s dependence on them. Both approaches are necessary”.
Being outspoken
Rajan, in a lecture at IIT Delhi in 2015, expressed his concern over the growing intolerance in the country in the backdrop of the horrific murder of Mohammed Akhlaq in UP.
Rajan’s outspoken nature did not seem to have gone down well with the ruling dispensation. Many commentators were also uncomfortable with the former RBI Governor speaking about issues totally unrelated to monetary policy and the economy — and not all of them were necessarily soft on the BJP.
When asked in a recent interview about his controversial speeches and whether he would act differently now if given a chance, Rajan’s answer was, “I don’t think so,” and for good measure, added, “I think the alternative is not changing the speeches, the alternative is not speaking!”
India today is in dire need of more such outspoken intellectuals.