Raghuram Rajan: Why he does what he does
It seems almost unimaginable now, but if there was one person with whom Prime Minister Narendra Modi jostled for media coverage and newspaper column inches, it was an academic-turned-bureaucrat in a grey suit.
Raghuram Rajan, who left India in September 2016 to resume his teaching career in the US after the expiry of his term as governor of the Reserve Bank of India (RBI), was a darling of the media.
Arguably the most keenly followed central banker in the world—a man who resolutely insisted on civility and restraint in public debate—the papers have never seemed the same since the economist’s departure.
Oh wait, he is back—in his grey suit, no less. And, not surprisingly, the papers have begun to sing again. The reason is a book by Rajan, called I Do What I Do, which is a collection of his speeches and writings mainly on monetary policymaking in India and other emerging nations.
But the timing of its publication was almost spooky in its newsworthiness, coming within days of RBI announcing that banks had received 99% of the invalidated high-denomination notes, a statement that threw a cloud on the original aims of demonetisation.
The news revived doubts over whether the short-term pains—the rate of economic growth slid, the labour-intensive informal sector took a hit, people died at snaking cashpoint queues—were worth it. Could it be, as the British are fond of saying, that it was a case of ‘jam tomorrow’?
With impeccable timing, Rajan waded right into this debate. But being an economist, academic and former bureaucrat, he took a measured tone, couching potential subjects of legitimate parliamentary debate in the seven-page introduction to his book and in subsequent interviews. He spoke and wrote about RBI advice on demonetisation but only, he insisted, to clear the air because references to the matter had already been made in Parliament.
At the centre of this controversial matter is the question of whether or not the government’s shock move to demonetise Rs500 and Rs1,000 notes, announced on the night of 8 November, had the approval of RBI. Following months of media speculation, finance minister Arun Jaitley told Parliament in February that consultations “at a very senior level with RBI on this issue” had begun in February 2016.
As the Press Trust of India news agency reported at the time, a lawmaker then asked Jaitley through a supplementary question whether RBI actually took the decision on its own or whether the government told it to do so. To this, Jaitley replied, “The RBI board met and independently applied its mind and made a recommendation to government.”
What this recommendation was, Jaitley did not say.
As governor of RBI, Rajan’s views were indeed sought back in February 2016. He says in his book that he gave his advice orally, rather than in a written document.
What was it?
“Although there might be long-term benefits, I felt the likely short-term economic costs would outweigh them, and felt there were potentially better alternatives to achieve the main goals. I made these views known in no uncertain terms.”
He was then asked to write it all down in a note, which RBI put together and handed to the government. This note “outlined the potential costs and benefits of demonetisation, as well as alternatives that could achieve similar aims.”
“At no point during my term was RBI asked to make a decision on demonetisation, ” Rajan writes, adding: “Enough said.”
Indeed. The few paragraphs devoted to this matter in his book make it abundantly clear to the outsider that India’s move to demonetise high-value currencies did not have Rajan rhapsodizing over it. The stamp of approval wasn’t sought, and it wasn’t there.
Thankfully for economic historians, he has strewn hints all over the place and, rather helpfully, pointed to them in his book. As he said in a 2014 lecture, in reply to a question, “It (demonetisation) is often cited as a solution. Unfortunately, my sense is, the clever find ways around it... I think there are ways around demonetisation. It is not that easy to flush out the black money.”
His views on demonetisation, however, remain important to any historian of India. He is after all widely respected as the economist who saw the 2008 financial crisis coming. Underlying his reticence is something else.
A glance through Rajan’s stint as central banker shows that he stuck to the rules, disapproved of media leaks and was wedded to process. It is his unstated but clear emphasis on process that stands out in a country, where it remains, to put it mildly, an aspirational quality for governance.
And that, to my mind, is why governor Rajan does what he does, emphasizing the importance of process, rules and debate over innuendoes, leaks and noise.
In monetary policymaking, too, Rajan stresses three yardsticks in his book: predictability, transparency and sustainability, further marking him out as a process-driven man. (Process has its unintended positive consequences, too: for instance, it got him to time the book with perfection. “I did not want to intrude on my successor’s initial engagement with the public, so I determined to stay silent for a year.”)
When he was leaving India, Rajan says, the security officer who stamped his boarding card at the airport “asked me when I am coming back to work in the country”. It gave him a sense of personal fulfilment, he says.
The answer to that particular question is something the Indian press would love to know, grey suit notwithstanding.
Dipankar’s Twitter handle is @Ddesarkar1