Raghuram Rajan says RBI governor has to speak up about risks when necessary
Mumbai: As the primary manager of macroeconomic risk in the country, the governor of the Reserve Bank of India (RBI) has to speak up about risks where necessary, explains former central bank chief Raghuram Rajan in his new book I Do What I Do. However, many a time, this had led to criticism that Rajan had overstepped his remit as central bank governor, especially when he made a speech about India’s long tradition for tolerance, and made for an uneasy relationship between the central bank and the government.
“As an apolitical technocrat, he can neither be a cheerleader for the government, not can he be an unconstrained critic,” wrote Rajan, pointing out that the role of RBI governor is more than that of a regulator or central bank chief. “This is a fine line to tread and the governor has to pick both the issues he speaks on, as well as the tone of his commentary, very carefully.”
The biggest backlash that Rajan faced (according to him) was when he had used the phrase “in the land of the blind, the one-eyed man is king” in an interview when he was asked about India being a bright spot in the global economy.
Rajan replays his whole answer in the book and wrote that “any fair read” of his “entire answer” would conclude that he was optimistic about India and was not downplaying what was going on, even while recognizing the work the country had to do. He wrote that he was “fed up of the perhaps motivated search for controversy”.
A second instance where Rajan faced flak, especially in social media, was over the use of the word “Hitler”. In a 20 February 2015 speech at the D.D. Kosambi Ideas Festival in Goa, Rajan illustrated that strong governments many not always move in the right direction, using the example of Adolf Hitler.
“If I had known the connections that would be made on social media, I would not have used it. The speech was about the need to remedy the weakness of government capacity in general in India—with no specific administration in mind. It was indeed construed as a warning against strong government, especially the current administration.”
The former governor’s habit of speaking up on issues led to much speculation that it was responsible for the government not extending his tenure. Indeed, in a Sunday interview to The Times of India, Rajan said, “We never reached a point where the government made me an offer to stay on... There was no offer on the table. That’s fair to say.”
Another instance of a run-in with the government is when Rajan used the phrase “Make for India” in a talk about “Make in India”, which critics said was aimed at undermining the government programme.
“No sensible economist could be against making in India if that came from an improvement in the business and infrastructure environment rather than our old, discredited policy of raising import barriers to encourage import substitution,” wrote Rajan.
“I did not disagree with where one should encourage production—we should ‘Make in India’. Where I felt some of the narrow votaries were being overly optimistic is in expecting strong global demand at this time, given global weakness. I was not advocating export pessimism, but realism, borne out of the subsequent significant weakness in exports that we have experienced. We had to make in India, but initially largely for India, and so we have done at the time of writing.”