Dr Raghuram Rajan is going back to academia - from whence he came. He goes back disappointing those who respected him, with affection and hopes that he would open up our financial system and liberate the denizens from unnecessary regulations. He did his best but has left the task unfinished. Two more years and we would have seen the magnificent canvas he was painting in all its glory. It was not to be and that is the story of India, three steps in front and one step back - an improvement nevertheless disappointing.
When he became Governor, the rupee was under attack and weakening. He identified the players who were speculating wildly, read the Riot Act to them and broke their back. He got in 30B$ as deposits, incentivising our greedy banks, and made sure he bolstered our reserves. He had a great advantage - he was not overawed by the challenge. He came from the biggest financial system in the world, understood its mechanics and having been Chief Economist at the IMF, he knew the global markets and how they worked. He was very brave and forthright, having stood up to Alan Greenspan at the holy ground of Jackson Hole, when the whole world was singing his hosannas, to warn them all that the world faced a real threat of a financial meltdown due to Greenspan's policies and that they would get into a big hole. They were shocked, more so that Dr Rajan dared to warn them when they had almost banished financial risk. Working at the University of Chicago, he was in the hotbed of alternate financial thought and an iconoclast by nature. India had a Governor who knew much, much bigger financial systems globally and who could be bold in times of need.
He brought in radical change, targeting CPI instead of the long-abused WPI to target inflation. For the first time, a RBI Governor told us that as consumers and savers, CPI impacted us more than WPI. For decades, high inflation had impoverished the saving class, all of us poor souls who slave it out day after day to save some miserable amount and see its value disappear due to high inflation. He explained this to us using Dosa Economics as an example. That it enriched the cronies immensely who borrowed. Not many countries have seen this huge transfer of wealth from crores of savers to a tiny cabal of crony capitalists for as long as India has seen over years. Read the list of the top ten borrowers and those in trouble, and one will understand how the system had been captured to the detriment of citizens.
Our crony capitalists (not the honest ones who are still many) borrowed hugely, built up their capital from borrowings by diverting part of this borrowing, and when the market went down, went crying to banks willing to restructure and write offs.
Many banks were willing, led by a misguided sense of purpose, forgetting that their duty of care was to the honest borrower who paid back every rupee; they also paid for their mistakes by paying higher rates to cover massive losses from cronies. This time it was a little different though. Dr Rajan removed their fears, Finance Minister Jaitely promised support in the clean-up, and PM Modi thundered that there was no room for cronies in Delhi and he would ensure that they paid back the last rupee. At last, probity in the system!
He opened up the banking system, giving new licences and making them available on tap including payment banks, which threatened the status quo. He asked the banks to be honest and transparent. When they, as usual, dilly dallied, he again set the date and told them they had to come clean on NPAs and expose crony capitalists. India was shocked at the truth but the cronies were on the run. When the truth was revealed, the banks had nothing to fear and could go after the cronies! The cronies fought back in the only way they know, using surrogates to attack him personally, make vague illogical charges to hurt his self -esteem and enrolling the biggest crusader for public probity that India had! They knew the weakness of the crusader: an emotional approach to patriotism and his sense of what India is.
Dr Rajan could not forget his first passion - teaching and research. He tried to bravely improve the quality of economic research in India. He found out the truth - there were no quality researchers around. The Left had captured the field, and academic institutions, lowered the quality of teaching and research, peddled failed theories and promoted poverty economics. Our brightest had fled overseas, not many came back, even the Tsar of economic thought, the Nobel Prize winner himself lived overseas. Of course he came during our winter (too cold where he stayed) to warn us how miserable and poor we were and how we would stay that way, all because the Left ruled our thoughts to keep us poor. When Dr Rajan spoke about the lack of quality, he was pilloried by the Patriots, who believed Mera Bharat Mahaan and that we had it all, forgetting our low ranking in research, and the Left chuckled at their success.
But Dr Rajan was made of sterner stuff! He went round the country lecturing, venturing into uncharted areas to warn us of peril! The press had a field day, they picked up sentences out of context to make him their pin-up boy in their one-sided ideological fight against the new government. He was constantly quoted out of context, making the Patriots very angry: how could an RBI Governor tell us the truth about ourselves! None of them apparently read his full speeches where he demonstrated his full commitment to India. He had sacrificed much to take up this post, but they ignored this, infuriated by the truth.
Dr Rajan, being handsome, articulate and approachable, became a rockstar on his arrival in Mumbai. The Resident Intellectual of Mumbai declared that women were drooling over him soon after he took office. The glamour crowd saw him as one of their own. Rumours abounded about the many film offers but being an academic, he appears to have politely declined - the Khans were very relieved. We have never before had a great looking, young Governor who was a global figure. This created its own sense of jealously and inadequacy amongst many.
Finally, the Patriots won, the people of India have lost, and Dr Rajan goes back to ponder about the big global challenges. Yet what he has done has changed India. He was a friend of honest industrialists, the young start-ups, the tech industry and the ordinary citizens and great savers! He has left his imprint behind in our lives and our economy. He has promised us he is ever willing to help!
Goodbye, Dr Rajan! Thank you for everything you have done and wish you all the best for your future. The world welcomes you back with open arms. They need your sage counsel to face the reality of a tepid global economy where the political leaders and the Central Bankers have run out of ammo and ideas.
(Mohandas Pai was the CFO and then the head of HR at Infosys. He is now Chairman, Aarin Capital Partners.)Disclaimer: The opinions expressed within this article are the personal opinions of the author. The facts and opinions appearing in the article do not reflect the views of NDTV and NDTV does not assume any responsibility or liability for the same.
Disclosure: Mohandas Pai is an investor in NDTV Convergence's e-commerce venture, smartcooky.com