After I wrote this post (it has appeared in ‘Swarajya’ too), a good friend forwarded the letter that Dr. Swamy had sent to the Prime Minister. It had too many elementary errors that it took no time for a crisp edit in MINT to dismiss the letter and recommend that the Prime Minister do the same. You can find two pages of the letter at the bottom of this post.
To the punchy arguments MINT made, I can add a few more:
(1) Choosing to use inflation rate as measured by the Consumer Price Index (CPI) as the target for monetary policy over the Wholesale Price Index (WPI) is not an anachronism or aberration. In fact, the opposite was true. India was an outlier in using WPI. (Note: It is a different issue if there should be an inflation targeting regime at all. There are sound arguments to be made against it and I have made them myself here).
(2) Inflation expectations among the public have hardly come down. One can see that in the RBI quarterly survey of inflation expectations. On that basis, India’s real policy rate is negative.
(3) To blame Dr. Rajan and his monetary policy for the non-performing assets in the banking system is to give a free pass to the corruption and cronyism under the UPA government which gave rise to the Non-Performing Assets in public sector banks in India. That is an incredible gift to the Congress Party from Dr. Swamy.
As if this letter of May 16, 2016 were not enough, another letter has surfaced in the Twitter world today. Here is the link where you can find it. This letter is dated Jan. 5, 2015!
Yes, a full sixteen months ago, written by Dr. Swamy to the RBI Governor, accusing him of instructing his officers not to provide information to the Enforcement Directorate (ED) in their ongoing probe into the investment by Karthi Chidambaram in the Aircel-Maxis case. You can read it for yourself.
(1) This letter, if authentic, was written in January 2015. There has been complete silence for sixteen months and it has resurfaced again, today! Very interesting, isn’t it?
(2) If the allegations in this letter were true, isn’t it elementary logic that Dr. Swamy could have used it to get Dr. Rajan removed, very easily? Wouldn’t he have referred to the letter of Jan. 2015 in his letter of May 16, 2016?
(3) Why would ED need RBI data? The same data would be available from the banks that did the money transfer. Even if RBI approval were required, the transfer of money goes through commercial banks and not through RBI. It makes no sense to seek RBI data.
(4) The letter also does not take into account elementary cost-benefit analysis for Dr. Rajan. Why would an internationally renowned economist put his entire reputation – built over a lifetime – and character on line for an Indian politician? The cost-benefits of doing so just does not make sense to me.
(5) In an email, one of my friends raised the following questions:
Why would any RBI Governor actively try to sabotage an ED probe?
Two, assuming he did and the concerned RBI official did not share information with ED, would ED have kept quiet for so long?
Would PM not have come to know this without Dr. Swamy informing him?
Now, going beyond the specifics of the letter or letters:
What Dr. Swamy, his fellow travellers and his supporters are doing is damaging them, their credibility, the institution of RBI and the Governorship. Further, their behaviour damages India, its image and reputation. Also, invariably, their actions will cast a shadow on the government, for no fault of the government.
Ideological inclinations have never been the criterion for RBI Governorship. It is a grave mistake to politicise the institution. Why would the next RBI Governor feel confident that his/her bona fide decisions would not be questioned the same way?
Alternatively, wouldn’t his/her reputation and personal credibility be permanently under a cloud if his/her decisions were pleasing to the government, even if he/she were to take those decisions out of his/her conviction?
Haven’t they created a lose-lose situation for the government and hence for the country and the economy?
(Postscript (ht: Jidnyasha): The Finance Minister has done a very good job here, when asked to comment on Swamy’s letter to the Prime Minister)