The cunning alchemist

The header for this post refers to Mr. P. Chidambaram, the former Finance Minister. In this post, we will deal only with the ‘cunning’ part. The next one will deal with the alchemy part.

That one would be in response to his column on May 8 when he tried to create some audacious myths about how the economy performed under the UPA government. He was trying to UPA’s leaden performance into a golden era! That is a separate topic which needs to be constantly and repeatedly debunked, lest UPA’s lost decade is airbrushed out of India’s economic history.

As a famous Indian journalist put it to me in a private email correspondence (I did not seek his permission and hence not quoting names here), if 1991 reforms were about coming back from the brink, UPA’ ten years were about taking India back to the brink. That is a different topic for a different occasion.

In this post, we will deal with a brilliant act he did recently. For tactical brilliance, it scores high. He simply made a comment that perhaps, this government did not deserve Raghuram Rajan. His remarks were deliberately aimed at making sure that opinions on the other side (BJP and the Government) are hardened incrementally and to reduce, may be, even eliminate, whatever little chances there are, for his reappointment.

It is somewhat similar to what Mani Shankar Aiyar did in April when he twisted Dr. Rajan’s remarks on the Indian economy and got under the skin of some BJP leaders. So, because it was tried once and worked, Mr. Chidambaram is doing it again.

He might be hoping that, with better luck (for his party), a bad or just a new and inexperienced RBI Governor wary of Government’s reaction to his moves, a disappointing or indifferent (uneven spatial and longitudinal distribution of rains) monsoon and a Fed rate hike, emerging market turmoil, could make the third anniversary party for the NDA government a glum affair. He senses a small opening here and is prepared to do his part to ensure that it remains, for his party. That is good tactics, for him and for his party.

In any case, I just sense that entrenched egos rather than enlightened judgement are going to play a role in the reappointment of the RBI Governor in September. If I have to wager now, I would wager on a new RBI Governor in September.

Macro-economic stability has been just barely established after the turmoil of 2013 summer (July – Sept.) caused by gross economic mismanagement of UPA.

But, this government just finds that a landline/dynamite has landed on its lap. How it is going to get up without blowing itself up is a big challenge.

Either on his own volition or for other reasons, Swamy has engaged in a personal attack on a RBI Governor. It has not happened in recent times. Central Bank heads can be criticised and replaced but not through a vicious personal attack.

When the Executive complains of judicial over-reach and vigilance over-reach leading to decision-making paralysis, the Parivar lynch-mob has created a similar risk with respect to monetary policy.

So, if external environment turns adverse as described above and if the new Governor does not either act in a timely fashion or in a half-hearted fashion or both, currency can take a dive and so would bond prices (yields up). The hard-won macro-economic stability of two years would be lost in two weeks.

For now, it is only a risk scenario. Not a baseline scenario. But, the probability of this risk scenario has gone up appreciably in the last few weeks. It is widely and badly under-recognised not only in the government but outside too. I have been variously accused of overreacting and being emotional about the present RBI Governor! Oh, well.

I would rather risk condemnation now for being a Cassandra rather than join in the complacent celebratory mood now. I am with Andy Grove: Only the paranoid survive.

India had lost probably about two decades or a quarter century to bad economic mismanagement in the last 67 years up to 2014. I refer to the period between 1966 and 1980 and between 2004 and 2014.

It is not clear to me that there is an adequate grasp of the challenges of achieving sustained high growth with the above combination of factors – internal and external. May be, there is. At least, it is not evident in public space.

Now, on top of this, if macroeconomic instability occurs in the second half of the year, kiss growth goodbye for few more years, at least, if not longer.

The government finds itself in this spot rather unnecessarily when it should have been looking to consolidate and accelerate in the third year, with continuity of personnel in key positions, etc.

To my mind, a big self-goal on the part of the government is a probable scenario. We can argue on the probability.

Of course, will be happy to eat humble pie on that one.

2 thoughts on “The cunning alchemist

  1. Dear Ananth,

    Why do you leave out the period from 1947 to 1964 from your periods of “bad economic mismanagement”? During that period, the great visionary Nehru led India to a compounded annual growth rate of 1.68% — and then had the audacity to pass it off as the “Hindu” rate of growth! This was the same period when visionaries like Lee Kuan Yew set countries like Singapore on the path to becoming first-world economies.

    You would have an easier time tallying when the economy was NOT mismanaged, and you would come up with: 1991 to 1996, 1998 to 2004, and 2014 to now. Not coincidentally, these are the only times that the dynasty was not ruling the country (excepting the shaky coalition between 1996 and 1998).


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