The anti-Cassandra of our times: How Raghuram Rajan betrays his own sermons
Just like clockwork, Raghuram Rajan the former RBI Governor and the much-loved economist of the ancien regime and its loyalists is back in news. This time telling us that “anti-minority” tag will not be good for the business of Indian companies. Incidentally, this is coming straight after India entered the list of Top 10 exporting countries in the world with over $670 billion of total exports in FY 2021-22. And which is the major category of goods exported in this basket? Engineering goods. From China to the US and from The Netherlands to Belgium, the high technology, precision manufactured engineering goods were the most in-demand from India. Quite obviously, none of these countries was listening intently to Rajan.
Raghuram Rajan was incidentally in circulation a few days ago as well; the moment India was in global news for three record-breaking manufacturing-related news. What were these records?
First, smartphone exports from India are expected to touch Rs 42,000 crore in 2021-22. Compare this to just Rs 1,300 crore in 2017-18 and one can only marvel at the meteoric growth of over 3,100 per cent in just four years! Second, India achieved a never before the target of $400 billion in exports of goods in the year 2021-22 despite it being a pandemic year. Third, the Advanced Chemistry Cell (ACC) PLI attracted huge interest from manufacturers and four such manufacturers were selected for the Rs 18,000 crore PLI scheme.
One would presume that Rajan would have been happy at the manufacturing boom finally taking off in India. Think again. He was instead advising India to shed its focus on manufacturing and rather focus on services and its exports. Not only that, he even rubbished the PLI schemes despite it being an unparalleled success. If you think that this is absurd then just read on about Rajan’s history of solutions and predictions as compared to reality.
However, a small caveat. This article is less about the person Raghuram Rajan but more about the mindset and the ecosystem that he represents which has for the past eight years tried to scuttle India’s growth trajectory at every opportunity. Rajan is merely a symbol to elucidate the mindset. With that caveat, consider the six examples below.
The
Jan Dhan scheme, launched in 2014, has been arguably the most revolutionary government scheme since Independence. From acting as a base for the digital payments revolution to acting as the bedrock of welfare delivery mechanism, especially during the pandemic, Jan Dhan has empowered the poor more than any other scheme. The reason why Narendra Modi could connect every household to bank accounts and not any other government before him was that Modi pushed at a herculean pace from day zero. What was Rajan advising at that time in 2014?
“Avoid hasty rollout of Jan Dhan” headline in a newspaper on 16 September 2014 tells us all we need to know. History tells us that India did well not to heed his advice.
More recently, on 13 January, 2021, Rajan dismissed the possibility of a V-shaped economic recovery after the pandemic and said “
My guess is we probably will not be back to, until late next year, 2022, where we might have been, before the pandemic… It will take a little longer to go back to status quo”. But when V-shaped recovery did actually take place a year before Rajan’s prediction then he dismissed it as the only natural outcome on 7 December 2021 –
"Create a bad enough downturn and the recovery will always be V-shaped".
What about the privatisation of PSUs? On 22 September 2020, Rajan’s advice was to go ahead
“Re-privatisation of select PSBs can then be undertaken, bringing in private investors who have both financial expertise as well as technological expertise”. But when the Modi government actually did start the privatisation drive then Rajan’s new thesis enunciated on 11 September 2021 was
“Better governance and better rules can do as much as privatization.”.
What about MSPs? At least we can expect some consistency there? On 26 February 2014, when the ancien regime was in power, Rajan’s wisdom on MSP was
“Food prices should be determined by the market and MSPs (minimum support prices) should be used to provide only a lower level of support so that production decisions do not get distorted or the price wage spiral accentuated. This means limiting the pace of MSP increases going forward." Cut to 2015 when the Modi government was in power and a 2 June 2015 headline in a prominent paper sum up Rajan’s position well
“Rajan moots minimum support price across commodities”. So, in just a space of a year the position moved from limiting MSP to making it universal!
Labour laws then? On 15 March 2013, Rajan was, like all sensible economists, suggesting reform in labour laws.
“India’s labour market is overregulated,” he said and pleaded for reforms. But when states like Uttar Pradesh and Madhya Pradesh actually started reforming labour laws in 2020 (apart from central reforms), Rajan was a different man and started pleading circumspection and consultation (euphemism for no action). A leftist publication quoted Rajan as saying
“a lot of the labour reforms announced for three years by the governments of Uttar Pradesh, Madhya Pradesh and Gujarat were long talked about and perhaps needed, they should not be done with the stroke of a government pen. Such steps needed wider consultation otherwise they could provoke protests on the streets.”
On 29 October 2021, Rajan was quoted on our economic prospects. His dire prognosis was that "As our economic performance is diminishing, our democratic credentials, our willingness to debate, to respect and tolerate differences is also taking a hit”. Just a few days later, the government reported the second-highest GST collection ever (Rs 1.30 lakh crore), pointing to robust economic recovery. The Q2 results that came at the same time – 8.4 per cent GDP growth – further hollowed out the very premise of Rajan’s theory of diminishing economic credentials.
These are only a select few examples of Rajan’s flip flops. Therefore, the cudgels that Rajan has thus recently taken against manufacturing, including PLI schemes – against all conventional wisdom and against evidence of India finally doing well in the sector – must be thus seen in the light of Rajan’s history. Of being consistently wrong or duplicitous when it comes to policy suggestions.
But as we said early on, this article is less about the person Rajan and more about the mindset he represents. It is this same mindset that mocked digital payments ambition on the floor of Parliament (P Chidambaram on 9 February 2017) and just three years later, India became the largest digital payments ecosystem in the world. It is the same mindset that tried every game in the destructive opposition book to scuttle the acquisition of Rafale fighter jets, even mobilising dubious arms exporters and lobbyists. It is the same mindset that lampooned and unleashed vicious propaganda against a decades-old vaccine manufacturing champion (Bharat Biotech) simply because they produced a vaccine against COVID-19 in parallel to the rest of the world and helped India vaccinate its entire adult population.
And what is this mindset? Of untrammelled hate against one individual – Narendra Modi. National interest be damned, as long as Modi can be stopped. What else explains an ‘economist’ Rajan launching a crusade against India investing effort and resources to finally hop on to the manufacturing bus – a move which has already evidenced demonstratable success. The world over, it is manufacturing alone which has provided well-paying jobs at the sale India needs. As the world supply chain and logistics readjust, India is for the first time is well placed to cater to the manufacturing market. At exactly the same time, Rajan has launched a crusade against every policy that promotes manufacturing and instead asks us to focus on services export. One can only wonder what his motives are!
However, on evidence of the past eight years, and to be fair to Raghuram Rajan, he does serve a public purpose. He is the anti-Cassandra of our times. Unlike the Greek mythological figure, Rajan is always trusted by his fellow travellers of ancien regime but is never right! Just like Communists used to perform this service in the past before being consigned to oblivion, we can count on Rajan to take a considered position on an issue and then be rest assured that the opposite must be true! Is this not public service!
