Incompatible with intelligence

(1) If there is an award for scoring self-goals with intellectuals and thought leaders in the country and outside, the BJP will win that award hands down. Good friend Harikiran brought my attention to this story in NDTV. This is not the first time that Subramanian Swamy had expressed his distaste for Raghuram Rajan, in public. He had penned an article for THE HINDU in September 2015 and I had responded to that in a blog post on that occasion as well.

Writing a letter to the Prime Minister on any matter is his prerogative. But, asking the PM to  ‘sack’ (strong word) the RBI Governor and then releasing that letter to the public is in very poor taste.

(2) The Congress and UPA for all their faults did not treat RBI governors like this. The anti-intellectualism in the party (BJP) is an impressive gift to the Opposition.

(3) Intellectuals and English-language newspapers and their editors may not bring BJP votes but they can cause a lot of perception damage for the government in the outside world. They will orchestrate a campaign that, among other things, this government suffers from intellectual intolerance.

(4) Ironically, this government has been wooing the outside world far more aggressively than the previous government ever did. Isn’t that mentally very un-Indian?

(5) I have heard from Dr. Subbarao about the exemplary respect that the Finance Minister P. Chidambaram showed him. He respected the position and accorded the respect and courtesy due to RBI Governor’s role, even though he came from FinMin to RBI. (Pl. note that this is not to be confused as a defence of Mr. Chidambaram’s sophistry as is evident here)

(6) If being mentally Indian counted for India, India should be a developed country by now, in every respect.

(7) Renewing a green card is not a crime. In 2019, if India’s fortunes turned for the worse, many would like to have the option. Not just RR.

(8) On interest rates, economists can debate it ad nauseam and ad infinitum, without reaching any conclusion. The first thing economists learn about any theory is that it holds good if thing stayed constant. That is why they are not the same as physical theories but just points of departure.

(9) The Indian economy struggled even when the country had mentally Indian governors. Of course, that was in UPA times which did most things under its power to hurt the Indian economy.

(10) The last time the Indian economy boomed was between 2003-08. That was when global economy boomed. Interest rates came down in the West and corporate balance sheets in India were in fine fettle.

(11) That is the point. Regardless of interest rates, other factors are not constant or equal. Exports are declining. Two back-to-back failed monsoons. Fiscal consolidation for two years because of credit rating downgrade risks and fears. Banks with broken balance sheets and corporations groaning under debt. Do low interest rates matter, in these circumstances? I am willing to stick my long neck out and say NO. For economists and others with interest (pun intended) on the matter, this paper I wrote in September 2015 should be an interesting read. The subject matter is precisely this: ‘Do interest rates matter?’

(12) The importance of keeping real rates positive in a country with dependence on external savings and where savings rates had not only stagnated but also declined has not been understood by an economist like Dr. Swamy. That is a pity.

(13) India’s small businesses are not to be feted and protected but offered a mix of carrots and sticks to grow out of their humble origins. If they cannot, the resources tied up in them and with them should be freed up for others.

(14) If the Left celebrated and entrenched poverty, the Indian ‘Right’ (there is nothing ‘Right’ about it) wants to entrench smallness for its own sake. Let us bring back reservations for Small-Scale Industries and all will be well with India because all was well with India when it had mentally Indian RBI Governors and reservations for the small-scale sector.

(15) ‘Swarajya’ had an article by R. Jagannathan (‘Jaggi’) on why this government should keep Raghuram Rajan for the right reasons. Jaggi got it right. The Governor is a source of unbiased advice for the Prime Minister and the Finance Minister. He can and should be encouraged to play the ‘devil’s advocate’ to keep them grounded and not be taken in by their own exuberant claims of ‘Achche Din’.

In fact, in my MINT article published on April 21, I had suggested that the government explicitly encourage Dr. Arvind Panagariya, Dr. Raghuram Rajan and Dr. Arvind Subramanian to play the roles of devil’s advocates and give it honest advice rather than play cheerleaders for it.

(16) I would like to cite again some observations made by Chris Wood of CLSA on Raghuram Rajan. I had blogged on them here:

GREED & fear hears that Rajan has Modi’s support since the Prime Minister understands that he is trusted by the markets.

There is a legitimate argument that the RBI has remained too tight, most particularly if real interest rates are measured against WPI rather than the new reference rate of CPI. Thus, the real repo rate deflated by CPI inflation is now 1.6% but is 7.4% if deflated by WPI inflation.

In GREED & fear’s view, Rajan’s policy is refreshing in the context of the monetary quackery going on in the G7 world, quackery which the Indian central bank governor has done the best job of criticising among all the world’s central bankers. This is why he will be a natural candidate to lead the IMF, or some other such institution, once those unconventional monetary policies have been fully discredited. But that is a story which has not fully yet played out, which is also why he should remain RBI Governor in the interim. [Link]

(17) If the only way that intellectuals could find room in the BJP tent is by becoming its cheerleaders – read Dr. Panagariya’s article in ‘Indian Express’ today and it should make you cringe because he is overdoing it –  that is a bad advertisement for the party and it also means that the party cannot be the vehicle to drive India out of its economic stagnation. Period. There are no IFs and BUTs about it.


10 thoughts on “Incompatible with intelligence

  1. I agree with the author about the MSM intellectual discourse and political motor mouths has been frustrating.

    But the author’s reaction seems to be based on some news “items” of a few media outlets with their own agendas. And it is more frustrating to see none of the media outlets give a complete picture even in aggregate.

    I am curious to know if the author as really looked at the complete argument of the “Swamy” side (there are more than a few legitimate domain experts who have studied, written and spoken about it for many years). Its not an isolated statement. The critique of current RBI governor has primarily has been at the policy level.

    The source of critique has been primarily on 2 issues:
    1. Incomplete understanding of the governor on the structure and pain points of Indian economy and finance (Credit burden, access and regulation of the “UnInc” which accounts for around 40% of GDP excluding agri, gvt and corporates )

    2. Violation of constitution/law of certain decisions (w.r.t. banking licenses) where courts had to intervene to stop the RBI governor.

    Lot of finance (and Austrian) folks are worried about Swamy’s “perceived” view on easy money printing. This scares a lot of them rightfully so and hence they tend to back Rajan who from Chicago monetary school believes in tighter policy.

    What the mainstream seems to miss is real cost for overwhelming majority of the enterprises is more than 18% (I would speculate median cost to be over 25%). These groups are the most capital efficient in terms of both jobs and output. This insane cost of credit with far lower inflation is a killer of output.
    Some of the most profitable entities in India in banking and finance are the ones that fund them. They tend to have a deflationary effect as it finances supply not demand like consumer and housing loans.

    The high cost of credit to these deflationary groups are in a negative spiral. One would have to be motivationally dispossessed at best to not notice this.

    One has to take the following into context:
    1. Time when finance folks and media called YV Reddy stupid and worse for scaring the markets by some statements who was later vindicated is foreseeing the risk.
    2. Swamy actually has been warning about crisis and he has successfully initialed reforms which pulled India out of crisis in early 90s
    3. Economist magazine has published that crony sector GDP has fallen from 16% to 3% since 2014.
    4. Under Rajan’s watch credit off take in deflationary sectors has suffered inspite of other structural changes which encourage output.

    Being mentally Indian is the ability to listen and understand the complexity of economic system specific to India and find Indian specific solutions and not about the Green card and Passport. If it has worked in engineering and business why not economics. I point you to YV Reddy here.


    1. Thank you for writing. your comments can be and have been addressed either in the two posts I had written on the topic or in the past. I had and have immense respect for Dr. Y.V. Reddy. Pl. check past columns in MINT and in BusinessLine before that. It is not the contention here that there is no homegrown talent. It is about the reasons and the manner in which certain posts, institutions and individual are treated. The dignity of the post and the institution should not be compromised. Is it a case of ‘Incomplete understanding of the Indian pain points’?? vs. ignorant peddling of hackneyed and stale and empirically failed approaches? In any case, these allegations have been tossed around without any substantiation. Since when the courts had stopped the RBI governor on the issue of bank licenses? Not giving banking licenses to corporations is an exemplary thing to do.


  2. Towards end of Subbarao’s term Congress was giving open blackmail to RBI governor to reduce rate as they were pressed to site growth at any cost to avoid election failure. Do your statement of PC not interfering is not true, PC even interfered with SBI and made the lend to already bankrupt kingfisher, which Malaya openly flaunted it to media then


    1. Please read my post carefully. I did not say anything about PC not commenting on interest rates. I wrote about courteous treatment.

      I did not say anything on his ‘interference’ on interest rates. BTW, he did not interfere. He used to offer his views on what the RBI should be doing as Mr. Jaitley is doing. In my MINT columns, I had criticised that practice of Mr. Chidamabaram.

      However, you are right that he directly leaned on the PSU banks to cut rates on personal and consumer loans. I had commented on that in the past in my blog.

      But, on this blog post, I spoke about the treatment accorded the post of a RBI Governor.


  3. to paraphrase one of the protagonists of this issue being discussed “in a party of duds, an idiotic harvard grad is still king”


  4. It is evident that Dr. Swamy is motivated by personal animus towards Dr. Rajan, for reasons unknown. I would say that Dr. Rajan started off on the wrong foot with the NDA government by making far too many loose comments about things that were clearly outside his purview (e.g. “Make in India” campaign), while at the same time betraying too much sensitivity about the government trespassing onto what he saw as his territory. If Chidambaram treated Dr. Subbarao with respect, the converse was also true. Dr. Rajan’s early behaviour made a lot of people suspect his motives. In the world at large, perception trumps reality every time, and Dr. Rajan still suffers from that perception. I know many sensible persons who dislike Dr. Rajan, though perhaps not to the same degree as Dr. Swamy.

    You say “Intellectuals and English-language newspapers and their editors may not bring BJP votes but they can cause a lot of perception damage for the government in the outside world.” I don’t agree entirely. Talking-head rags like The New York Times will do their best to cause “perception damage” to India, but they would do that in any case. Remember the NYT’s blatantly racist cartoon about our successful Mangalyaan mission? Hard-nosed business papers like WSJ will want to know where the money is, not how many “intellectuals” the government has. It is no coincidence that WSJ has the sensible Sadanand Dhume as its India correspondent while WaPo has the moronic Annie Gowen.

    Ultimately we BJP supporters need to identify who our target audience is. We can as well write off “intellectuals” either here or abroad. The elitists at NYT don’t like a chaiwallah becoming our PM any more than our own elitists. See their reactions to Donald Trump for example.

    When Vajpayee was in power, NRIs were quite passive about countering the bad press given by the likes of NYT and WaPo, but those days are behind us. Now NRIs are solidly behind the new government and will counter malicious propaganda, in boardrooms if not in Letters to the Editor. Ultimately only the former matter, not the latter.

    Those are my views, for whatever they are worth.

    P.S. Nice to see Vikranth commenting here.


  5. Brilliant and irrefutable arguments!! How well you have put forward so many facts – on Indias plight during UPA, on the Rightists, Intellectual paucity, endless arguments on interest rates, and on Independence of RBI.. Etc – all in one piece!! Really had to feel pity on BJP for allowing it’s own partymen talking nonsense without any supporting logic.


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