Tension mounts between RBI & Govt.: Hasmukh Adhia as RBI Governor ?

by Harish Gupta, National Editor, Lokmat Group

Tension mounts between RBI & Govt.

Hasmukh Adhia as RBI Governor ?

Harish Gupta

New Delhi, Nov. 8

As the tensions between the central bank and the Modi government refusing to ease, there is considerable speculation that the South Block is ready with a contigency plan in the event of RBI governor Urjit Patel putting in his papers.

Though RBI Governor Urjit Patel is on record to say that all issues will be discussed at the RBI board's meet in Mumbai on November 19, controversies refusing to die. Ut got a fillip when a leading newspaper reported that the Finance Ministry wants the RBI to part with over Rs 3 lakh crores in dividend. This is a record any government has sought from the RBI and has added fuel to the fire. The government and the RBI have not denied the report. Normally, the RBI has been giving dividend to the government to the tune of Rs 25000-30000 crores every year. But the Finance Ministry wants this amount to recapitalize the public sector banks who are facing a huge cash crunch. The government has already come out with a plan to fund these bank with Rs two lakh crores. But it is facing acute cash shortage due to surge in demand from the NFBCs, infrastructure sector and bank recapitalization.

Urjit Patel has maintained a studied silence despite provocative statements being made by some non-official and part-time members of the RBI Board. But Urjit Patel has sent a clear signal that he is a tough guy and unlikely to relent when comes to the independence of the RBI. The prospects of Patel resigning had receded as some sort of truce has been achieved. But after non-official member S Gurumurthy blasted the RBI and Economic Affairs Secretary Subhash garg attacked Viral Acharya, RBI Deputy governor, the war may escalate further. Garg attacked Acharya and mocked him asking him where is “Wrath of the Markets?”. Acharya had said if the government interfere, it will have to bear the wrath of the markets. The government is demanding that RBI relax norms for loans to power sector and relaxing norms for SMEs. Urjit Patel was in no mood to do so. The board of RBI was unwilling to relent also.

Highly placed sources say that the government is fed up with professionals who are not aware of the ground realities of the economy; be it Raghuram Rajen or Urjit Patel. It will now have bureaucrats as next RBI governor. It is in this regard that the name of Hasmukh Adhia is being mentioned.

He is retiring on November 26 this year. At one point, he was tipped to be cabinet secretary. But Modi decided to give extension to incumbent P K Sinha for a year. Adhia is from the Gujarat cadre and said to be one of Modi’s handpicked and trusted officials. Many in the bureaucracy believe that the government would like to retain his services in an important capacity after he retires. In the event of Urjit Patel choosing to stay put, Adhia may also be given an extension until the next General Election.

Ends

Caution, Chowkidar is asleep

by Harish Gupta, National Editor, Lokmat Group

CAUTION, CHOWKIDAR IS ASLEEP

So, with the Nirav Modi (NiMo) and Mehul Choksi scam hitting Rs 11,400, and still counting, the country seems to have doggedly refused to stray from its path of letting the financial systems open 24X7 for plunder. It might have begun with the Nagarwala case in the high noon of the early Indira Gandhi era. It could have evolved into the Harshad Mehta (early 1990’s) and Ketan Parekh (early 2000’s) saga, in which the two worthies in effect looted banks to fuel stock prices to dizzy heights. And, with the financial system being the platform on which the corporate system rests, the systemic destruction was in public view in 2009, with the brazen fiddling by B. Ramalinga Raju and associates of profit and loss figures of the erstwhile Satyam Computers, in cahoots with PriceWater house Coopers, the world famous auditors.

In fact that was a major reason why voters thought they’d had enough of it, gave an almighty shove to the Congress-led government,and welcomed a regime led by one who proudly promised : na khaunga na khane dunga(“neither will I steal nor will let others steal”) and will be your Chowkidar (Guard) for 24X7.

However, the two diamond traders’ recent escapades, in obvious collusion with a gaggle of officials of Punjab National Bank and their unknown patrons, has turned Prime Minister Narendra Modi’s much-quoted pre-2014 assurance into a bizarre mockery. And the dimension of the theft too is poised to leapfrog over time, as more claims accumulate with PNB due to the fraudulent Letters of Undertaking (LoU) issued to banks abroad in favour of the ‘diamond duo’. Till last year, the duo could easily float below radar as they had a key ‘friend’, Gokul nath Shetty, PNB's Deputy Manager, who had enabled them to “roll over” the credits after the termination of the statutory 90-day period. The trick of the trade lay in circulating the LoU over SWIFT, the secure telecom network that connects banks the world over, without informing the bank’s own Core Banking Solutions (CBS). It is like your partner withdrawing cash from a joint account without informing you.

Or something even more serious! Because the rogue partner can cheat you only to the extent of your own net worth. But a PSU bank is owned by none other than the President of India. No government so far has agreed to bring its stake down to below 50 per cent. So it remains a ‘sovereign risk’ which, if left unchecked, has the potential to recoil on the exchequer. 

The question is: why did a government wedded to the promise of “na khane dunga” look the other way when NiMo’s companies were splurging on unexplained and undeclared bank credit for over seven years? How did Shetty continue in the forex department of PNB despite a Central Vigilance Commission rule that the incumbent in sensitive post should be transferred after three years? Why Shetty's three transfer orders were canceled? What were the bank’s army of external auditors doing? And where were RBI’s team of hundreds of inspectors who have the powers to inspect any branch, anytime and any account ? Why was the Modi administration so oblivious of  daylight robbery in its own banks?

Well, it can be attributed to the typical Indian lethargy to fight corruption. But there is yet another explanation why Nirav Modi's shenanigans went unnoticed under the NDA for almost four years. How will the ‘bigger Modi’ assuage his critics who point at his group photo with the ‘little M’ at the WEF conclave in Davos, taken days after the CBI had filed an FIR against the businessman? Besides, Nirav Modi is the brother of Nishal, who is son-in-law of the Salgaokar family of Goa, closely related to the Ambanis, the country’s richest clan. The CFO of Nirav’s holding company being grilled by CBI is nephew of the late Dhirubhai Ambani, the Reliance founder.

In the past, the likes of Harshad Mehta and Ketan Parekh defrauded the  nationalised banks and played havoc in the share market because of systemic inadequacies. Some of these flaws were indeed fixed, which is why the capital market today is fully screen-based, with adequate disclosure norms in place. The corruption-prone badla system was replaced by a mature derivatives market. But the banking sector remained largely untouched, except that Raghuram Rajan, as RBI Governor, initiated the diagnostic steps. These showed how deep the rot had gone. The bad loans of public sector banks were 4.4 per cent in March 2014 against 2.09 per cent in 2008-09. After the change in government, as Rajan was forcing the banks to own up their losses and today the figure of NPA is over 14%. Rajan didn't have a cordial relationship with the Modi government is too well known. He went, and even the disclosures stopped. Choking under bad loans, the PSU banks began putting squeeze on total advances last year, for the first time in two decades. The banking sector’s bad loans, together with loans being rolled over and under restructuring, have hit a dizzying Rs 10 lakh crore, which is 3X the country’s tax revenues. If one looks at only PNB, its NPA has shot up three times between 2014 and 2016, from Rs 18,800 crore to Rs 55,818 crore. And roll overs are tubmling out of the closet of one bank after the other.

It is clear that somewhere someone is involved and guilty of connivance, ignorance or humungous lapse. Narendra Modi handles all appointments, transfers, postings in government & banks. He reads every complaint and mail sent to him and responds as well. His Man Ki Baat is a testimony to his actions. He gave a dressing down to the jewelers at a huge conference in 2015 and imposed taxes on them which no PM could dare in the past. But did he measure up to the job of chowkidar (sentry) when it came to guarding banks' coffers ? Pollsters say his ratings remain high. But as another election draws near, the chinks in Modi's armory are clearly showing.

(The author is National Editor, Lokmat group)

Come back oh, charkha

by Harish Gupta, National Editor, Lokmat Group

If you are running marathon but joined the race an hour or so late, it is likely that you will reach the final post 26 miles away some time. But the competition will certainly close before that. A similar fallacy is staring India. When government"s financial data were released last week, and it was found that the Gross Domestic Product (GDP) had grown 7.1 per cent in the April-June quarter, against 7.9 per cent in the last quarter of the previous fiscal, there was dismay and consternation all around.

Swamy ke peeche kaun hai?

by Harish Gupta, National Editor, Lokmat Group

The name may be Bond, James Bond, but there is always an 'M' in distant London, the super-boss of the MI6, who dictates each of his moves like a puppeteer to the puppet.

AS PM OF IMAGINATION

by Harish Gupta, National Editor, Lokmat Group

Only two years are past since the installation of the NDA government led by Narendra Modi. It is therefore distinctly premature to pass a judgment. Some governments begin well but get miserably clogged up half way through, like it happened with the second UPA government piloted by Manmohan Singh. It dived headfirst into an unending cesspool of corruption charges, and got terminally tainted. On the other hand, the Rajiv Gandhi-led government began in 1985 amid great euphoria, until rumour of corruption in defence deals became so shrill that every attempt by the government to silence it seemed phoney and the prime minister’s name became mud.

Modi seems to have learnt lessons from the above example, and his promise of “Congress mukt” India is actually a commitment to keep his administration free from the stench of corruption. Unlike Manmohan Singh, Modi is a hands-on PM. Perhaps, this is the reason why there has been no charge of financial depravity in any of the ministries till now. To ensure that the clean image of his administration sustains, Modi has been particularly insistent on transparent e-auction of the natural resources, be it coal, oil or natural resources.

But a prime minister is not rated high simply if he keeps his nose clean. Modi has sparks of originality that marks him out from his contemporaries. Jan Dhan Yojana is an example. On the face of it, it is a simple plan to give a bank account to every unbanked poor. It is another matter that 21.43 crore such accounts have been created under the JDY scheme in less than two years, with the share of ‘zero-balance’ (therefore, nominal) being 27 per cent and falling. But the idea is not to turn the poor Indian into saver overnight. It is rather a financial architecture for direct transfer of all future state subsidies and grants, thus eliminating the pressure of middlemen that has plagued welfare since Independence.

In a sense, Modi is truly a Gujarati trader at heart and understands the importance of cost-cutting through disintermediation. His idea of Digital India and Smart City as well as Smart Village may sound nebulous. But, when completed, they are all about transforming Indian business from the old chaupal, and the gaggles of middlemen, to transparent and speedy transactions in real time. In India, Bengaluru, Hyderabad and Gurugram came up not due to any governmental thinking but because telecommunication became faster and cheaper so an opportunity arose for Indians to do offshore maintenance jobs. Modi, with his digital thrust, now wants to turn this opportunity into a bold new venture, with a programme like ‘Make in India’.  Samsung the Korean giant, is now setting up a unit in Noida near Delhi to make a line of its mobile phones. Recently, when Timothy Cook, chief of Apple, visited India and met Modi, he was clearly told that he could launch Apple Stores in India if only he used some (30%) made-in-India products. In fact, most foreign IT biggies, including Microsoft Corporation and Cisco Systems, have of late increased their manpower and investments in India. Huwaei, the Chinese telecoms major, has started a research & development centre in Bengaluru. That Modi puts his finger on the economy shows in his MUDRA scheme for financing six crore small vendors and businessmen, 61 per cent of whom are minorities, SC, ST or OBC. Maybe he could relate to their condition, being a tea seller at a railway station once.

Modi can think and dream big. He has persuaded Airbus Industries of France and the Tata Group to begin collaboration on design and manufacture of a military transport aircraft. Airbus has already begun manufacturing some of its parts in India. These are the first green shoots of high-tech industry in India, a sector in which India lags not only behind the Asian major powers like Japan, Korea and China but newcomers like Thailand and Vietnam. To facilitate entry of high technology, FDI cap on defence industries has been pushed up to 49 per cent and Indian firms like L&T, assigned to make nuclear submarines, are potential conduits for transfer of sophisticated technology.

Some of the things that outwardly appear to be Modi’s mere fads, like yoga, for that matter, are actually smart ideas to improve public health at low cost, and creating jobs. In this year so far the government of Haryana has given jobs to 25,000 persons as yoga instructors. Similarly, his Namami Ganga scheme for cleaning up North India’s arterial river, for which a budget of Rs 20,000 crore is allocated, should create a chain of municipal waste disposal projects along the river. It is a national renewal scheme on an unprecedented scale with a huge potential of creating jobs.

In his first two years, if his conduct seems somewhat puzzling, it is in his silence about the mindless outbursts of his party’s fringe elements. Their missiles are not always limited to a bigoted version of art and culture, or ancient history of their choice. Despite Modi, as it appears, Subramanian Swamy, a machinator par excellence and newly appointed BJP member of the Rajya Sabha, is firing salvos at RBI Governor Raghuram Rajan on trumped up charges. When Rajan was under attack from the finance ministry for his stubbornness and refusing to reduce interest rates, Modi had stepped in April last year saying he is a good teacher. But this time Modi has preferred to practically remain non-committal on the controversy. He may be upset with Rajan for not reducing interest rates for high growth despite low inflation. Modi cannot remain maun  like his predecessor Manmohan Singh and is nor an “accidental prime minister” either.  His has pressed the pause button in terms of launching new schemes and  fully focussed on implementing programs already launched as next coming two years are crucial for him to establish that he is not an accidental choice.

TOO MUCH SWAGGER

by Harish Gupta, National Editor, Lokmat Group

The government of Narendra Modi is soon to complete two years, which, if compared to a human life span, is like someone reaching 35 years. In 2014, Modi's NDA swept to power on the crest of great popular expectation. Yet, in what can be described as its late youth, the Modi government still fails to inspire confidence; rather, it resembles a dissolute person who refuses to learn from experience.

As it approaches 'midlife', it becomes more and more brazen with institutions and rules. Much of it centres on Modi's hatred for Congress, the main opposition party, beginning with his invective that he'd like to see a "Congress-mukt Bharat". His irritability to the presence of Congress even in far-flung and minor states was evident last year when the Union Government, assisted by the loyal Governor of the border state of Arunachal Pradesh, laid out an elaborate plan to topple its Congress government with the help of 'dissident' MLAs. The plan succeeded but not without the smoke and mirrors of a conspiracy— complete with the Governor attempting an assembly 'floor test' in a five star hotel, the Union Cabinet holding meeting on a Sunday to recommend President's rule under Art 356, and it being revoked as soon as Kalikho Pul, the main dissident leader, had obtained the required number to form the next government. A last word on this adventurism is yet to the written as SC ruling is expected anytime.

After 'liberating' Arunachal from Congress rule, the Modi administration turned its attention to Uttarakhand where it turned out to be fatal this time round. At the end of a 50-day-long tug-of-war between Uttarakhand's Congress chief minister Harish Rawat and the Centre, it was Rawat who had the last laugh. Following a powerful intervention by the high court, and a robust judgment of the Supreme Court that stuck to the knitting of the S. R. Bommai Case (1994, it held that promulgation of Art 356 is subject to judicial scrutiny), Rawat not only regained his chief minister's seat but dealt a blow to BJP powerful enough to put its nose out of joint.

Modi's obsession with the Congress is now affecting his clarity of judgment on issues that are less personal and of more immediate concern— like a stagnant economy, a retail inflation which is proving more stubborn than earlier projected, and a banking system reeling under NPAs. It is at this juncture that Subramaniam Swamy, BJP's one-man army against the Congress, has entered the fray. He has begun a vilification campaign against RBI Governor Raghuram Rajan. He is known as a crusader against inflation and respected globally for his nose for coming economic crises. But Swamy's vitriolic outburst against Rajan, that he be "sacked", is both offensive and puzzling. Why did the Prime Minister, who had seemed to hold Rajan high in his personal estimation, did not discipline Swamy? Is it because Swamy was targeting a man put on the high pedestal like RBI chief, by Congress? If so, it is a pity because BJP lacks economic talents and Rajan is not only a renowned central banker but a tough sheriff to control the loot of banks by crony capitalists. 

However, having seen Congress humbled to 44 Lok Sabha seats after the 2014 general election, there was little need for even a ruling party wedded to a 'Congress-free India' to act in a tizzy. With 57 Rajya Sabha members having retired last week, 14 of them from Congress, the party's strength in the Upper House may even dip low enough for BJP to finally draw level with it. Besides, Congress is out of power in all but six of the 31 states, while two others, Kerala and Assam, are poll-bound. Instead of lying low for the present due to tactical reasons, the administration is actually giving local & regional parties enough provocation to rally with Congress in future. A recent example of a past critic of Congress turning a new leaf is the ease with which the two BSP members of the Uttarakhand assembly hugged Congress MLAs, their rivals, before the floor test of Rawat's majority at the Dehradun assembly. 

Modi and his advisors are perhaps hoping that Congress president Sonia Gandhi might get mired so deep in the Augusta-Westland controversy that, in a parliament with a near-silent opposition bench, it will be cakewalk in the next three years till 2019 poll. Pro-Modi activists are perhaps drawing parallels from recent history, particularly with the effectiveness of the 1989 campaign against the late Rajiv Gandhi in the thick of the Bofors payoff allegations. But the inherent reason for the Congress rout under Rajiv lies not just in the scam report but in the more compelling fact that the party was without any major ally when the crisis was taking shape. Despite getting a massive mandate of 411 Lok Sabha MPs, Rajiv Gandhi’s advisers allowed the Left to join hands with the BJP and messed up every issue; be it Shah Bano, Babri, Sri Lanka’ Tamilians or Bofors. The final nail in the coffin came from forces within Congress.  

BJP under Modi is also drifting towards a similar alienation. In Bihar last year, and West Bengal now, Congress is winning friends. If BJP can put up an impressive performance in Assam as the results are declared this week, it will be due to its alliance with AGP and Bodoland People’s Front. In the Uttar Pradesh election next year, the chances of a Bihar-style anti-BJP mahagatbandhan depends on just how much Modi can avoid confrontation. On the day of election, voters after all prefer achievers, not swaggerers and hyper-combatants.

ACHHE DIN NOT TOO FAR

by Harish Gupta, National Editor, Lokmat Group

In May 2014, Narendra Modi, on assuming power as India's Prime Minister, seemed an epitome of strength in stark contrast to UPA in its last leg. But it took only a few months to find the Modi administration's Achilles Heel—its deficit in numbers in the 245-member Rajya Sabha. Pitted against an opposition determined to crush Modi's reputation as a human dynamo, if not his credibility, the government had to sit out as scores of its bills got stalled in the upper house. The government was crippled and the opposition thought it had won.

 However, the Congress' fencing in the Rajya Sabha is showing gaps that may soon be wide enough for Modi to ride through. Come August 1, when biennial elections fall due to 56 seats across 15 states, and seven more nominated members are replaced by 'eminent' personalities chosen by the present dispensation, the NDA/UPA difference will be greatly neutralised. But the real change lies in the growing pull of BJP among large regional players, like TMC in West Bengal, BJD in Odisha and, significantly, both SP and BSP in Uttar Pradesh.

But the number game in Rajya Sabha has only begun. In Andhra Pradesh, one has to watch if TDP gifts an assured seat to BJP minister Nirmala Sitaraman or INLD offers an olive branch in Haryana. And how many seats are gained by BJP's 'frenemies', like SP, YSR Congress and TRS is yet to be seen. And AIADMK, always a supporter of Modi except on the GST Bill, may get even closer to him if it is returned to power in the state for another term. No doubt it is Modi's skill as a player on India's vast political chequerboard that has begun to reap dividends. 

But he is lucky not only on the political front. The met department's forecast of 106 per cent of July-September "long period average" rainfall, after two years of below-average showers, has given a boost to demand which is so overwhelming that it kicked off a week-long stock market rally. Perhaps, rain Gods are also smiling at Modi after two years of drought. The Index of Industrial Production has registered a two per cent rise in February after months of contraction. Of course this rate of growth is midget sized compared to the 6 per cent that India has clocked on an average in the past ten years. But it is the first green shoot after a long drought. It synchronises with yet another happy tiding, that of the consumer price index rising only 4.8 per cent in March from over 5 per cent. Significantly, this drop in retail inflation is due to moderation in food prices, a key factor that can put more disposable income in the hands of the rural population. Besides, it signals the prospect of agriculture turning the corner at last, after a minimal growth of 1.1 per cent in 2015-16 and generally lackadaisical performance in the past. Tied to that is the destiny of half the country's population engaged in agriculture, a sector that contributes only 15 per cent to GDP.

Optimism about India under Modi is not limited to his loyalists and RSS bhakts in the country. It is shared by some of the world's largest Private Equity funds who specialise in the art of investing in businesses that has the prospect to grow in the future, often on a 10-year horizon. Carlyle, the world's second largest PE fund, in a note circulated by its director of research, has noted: "The most optimistic forecast for 2016 GDP growth in China (7%) matches the most pessimistic for India". It quotes IMF data to put India's expected returns on incremental capital (a single unit of capital newly deployed) between 2016 and 2020 at 24.7 per cent. It is twice that of the global figure and 1.7 times of the Emerging Markets. Be it power, railways, roads, airports and ports, the signposts of future growth, India has come a long way in the past two years.

Under Modi, India's politics is moving away from its traditional populist mould. Earlier, Congress was identified with its populist programmes—be it MGNREGA, PDS or doles. The real gains from them remained doubtful due to lack of strict monitoring mechanism and corruption. But Modi, the pragmatic leader, is doggedly pursuing Jan Dhan Yojana, Mudra and Aadhar, projects that bring welfare within the scope of audit. Only future can tell how much of wasteful expenditure Modi's fiscal filters are going to save. He is painted as hardhearted but that did not deter him, or his colleague, Maharashtra chief minister Devendra Fadnavis, to send wagons of drinking water to parched Latur. Modi may have failed to keep his election promise of bringing black money hoarded abroad back to the country. But his government is taking plenty of measures to raise the cost of tax evasion within the country. He is determined to regulate the sectors that shelters black money, such as property, jewellery, natural resources etc.

 He took the bold decision to allow 100% FDI in e-commerce companies thereby eliminating circulation of black money in retail and wholesale trade. He may have been opposed to some of the UPA’s schemes as Gujrat Chief Minister. But he is a fast learner. Once he realises the gains of a scheme, he doggedly pursues it. The way he is going after domestic black money and didn’t yield an inch is an indication of his well crafted strategy. He knows that he is creating an army of Modi-haters. But he had an inkling that the wheel of economy will surely turn. With RBI Governor Raghuram Rajan showering praises on him, the ACHHE DIN are not too far. Narendra Modi is not a hasty reformer. But nor was Deng Xiaobing, the maker of modern China, who said it is a good policy “to cross the river by feeling the stones”

(The author is National Editor, Lokmat group)

Union Budget last lane, no gas

by Harish Gupta, National Editor, Lokmat Group

As the date for 2016-17 Union budget advances, one cannot but have the impression of ‘driving’ a car on a game console. A lot of sound effect, and dizzy images of speed. But when the game is over, you can see the image of the car right on the spot it was. No action, no distance covered.

The Permanent Hawk

by Harish Gupta, National Editor, Lokmat Group

Alan Greenspan, former US Federal Reserve chief and the man often regarded as the inspiration behind the binge lending by banks resulting in the post-2008 global economic meltdown, however, had a remarkably modest idea about his job, particularly his policy pronouncements at regular intervals that had repercussions worldwide. He said, “what I have learnt at Federal Reserve is a new language which is called ‘Fed-speak’. You soon learn to mumble with great incoherence”.

RBI Governor Raghuram Rajan, as a central banker, is what is known in banking parlance as hawkish and his disposition therefore is quite the opposite of Greenspan. But he seems to have acquired the Indian variant of Fed-speak with much éclat. Earlier this month, he cut repo rate by 0.25 per cent, or 25 basis points, seemingly against his wishes. It is bad if he hadn’t approved of it, for that exposes the pliability of someone entrusted with the institution which is custodian of the value of the national currency. It is equally bad if he was not altogether opposed to a small rate cut, the third in 2015, even though he kept “mumbling” about the inflationary clouds on the horizon, careful, perhaps, that his hawk image does not get dented.

That his words do not square with his actions is obvious. He harbours doubts about the authenticity of the new methods employed by the Central Statistical Office to measure growth. His misgivings are tell-tale in the following post-policy observation by him: “Even with 7.5 per cent growth numbers, there is some discussion on how much of it includes special factors, including excise taxes and subsidies. When you subtract that, growth does not look as strong as before”. It is undoubtedly a matter of concern if the headline growth numbers have resulted from some creative computing.

India cannot afford to have a 

central banker who refuses to 

change his stance and lives in the past glory.

It is impossible to figure out why the RBI governor is increasingly putting himself in an adversarial role with the Central government publicly even though he couches his feelings in velvety words. “If I cut interest rates, it means I want to please the government. If I don’t cut interest rates, it is because I want to have a fight with the government. Why can’t you make up your mind?” he shot back at a questionnaire during his press meet. But his inner turmoil finds expression in a remark laced with sarcasm—“RBI is not a cheerleader. There are other people in the country who can play that role. Our job is to give people confidence in the value of the rupee, in prospects of inflation, and having established that confidence, create the longer-term framework for good decisions to be made”.

The top inflation manager of the country is evidently not in agreement with a single of the government’s future projections. Finance Minister Arun Jaitley has denied that there is any official prediction yet of a sub-normal monsoon. But Rajan is not convinced. Instead he has made his view on the subject profoundly enigmatic: “As you know there have been El Ninos in the past with reasonable rainfall. Poor rainfall has not (necessarily) led to a fall in production...” What is he saying? It confounds confusion. Returning to the issue of his perceptible doubt about growth, he wonders why we think the economy “needs great cuts” when it is growing at 7.5 per cent. It is a replay of his pet theme so far that left to himself he would possibly have not agreed on the cut. But he still keeps the escape hatch open. “In some sense it (recent rate cut) is a Goldilocks policy, just right given the current situation”.

Economics, as we know, is a bit like physics before Newton, with very few certainties, least of all outcomes that are universally applicable. Much of the economic expectations are shaped by collective hopes and fears of buyers and sellers, which in their turn are shaped by the central banker’s words. They are certainly not the Fed-speak Greenspan fancied them to be but are the rational fulcrum on which people’s expectations rest. It seems Rajan has taken Greenspan’s words seriously.

Ideally he should not. In fact he shot to stratospheric fame himself in 2005 when he presented, at a function celebrating Greenspan on the eve of the Fed chief’s retirement, that the recent financial developments had made the world riskier and “disaster might loom”. Sure it did, though celebrated economists of the day, including former US Treasury Secretary Lawrence Summers, had called his warnings “misguided”. The banking sector crisis in 2008 earned Rajan his reputation as doomsayer and is possibly the reason behind his familiar hawkish postures, now as RBI governor but even earlier as Chief Economic Advisor to the Union Government.

Of course the image he has acquired of being robustly risk-averse should help him in his future career, be it at home or abroad. With demographic changes in the rich world, and little restructuring in its most conservative part, notably southern Europe, it is likely that global economy in the near to mid-term future will need hard taskmasters like Rajan. But that does not necessarily mean that he should treat India as the laboratory for his views in the “austerity Vs stimulus” debate.

Rajan’s attitude gains added poignancy as Prime Minister Narendra Modi is currently leading the country through a series of structural reforms, be it in targeting subsidy and moving towards uniform indirect tax rates, the results of which can be visible only if there is no shortage of capital along the way. It may call for spending on, say, infrastructure being front-loaded, much as it happened in China of the 90’s. If, by a miracle, Rajan were China’s central banker at that time and could give its communist party his thumbs-down, maybe there would have been no rise of China to talk about. Nobody has doubted Rajan’s intellectual prowess, and his uncanny ability to smell risk, but India cannot afford to have a central banker who refuses to change his stance. Nor can Modi move ahead with reforms if capital remains sticky.

(The author is National Editor, Lokmat group)