Dr Ashok V Desai
Economist
As a commentator on public life, I have to keep an eye on what happens in government; it is difficult to imagine how boring it is. It is so seldom that a politician or bureaucrat has anything interesting to say. I must admit things have changed for the better at the top; while our last prime minister was an unbeatable champion of soporifism, his successor is a master of pastel dresses and purple phrases. But that is where showmanship ends; his cabinet ministers generally try to outshine Manmohan Singh.
That is why Raghuram Rajan was such a star. Those who use the word for him generally mean his looks; and he does look half his age and has a winsome grin. But that did not take much of my attention. What I appreciated was his way with words – his combination of intelligence and wit. Admittedly, he does often speak or write too quickly. For instance, he said in his Saving Capitalism from the Capitalists, “It is not because of the benevolence of the baker that we eat fresh bread every morning but because of his desire to make money.” Adam Smith put it better: “It is not from the benevolence of the butcher, the brewer, or the baker that we expect our dinner, but from their regard to their own interest.” But when he symbolically dons a mortarboard, he can be quite illuminating. Take, for example, his explanation of ever-rising dosa prices in terms of the Samuelson-Balassa effect: technological improvement goes on raising productivity and wages, but there has been no change in the technology of making dosas, so as the dosa-maker’s wage goes up, so does the price of dosa.
I am not sorry to see Rajan leave. That is not because he was not a good governor; on the contrary, he was so good that he was wasted on this government. Its finance minister has little idea of his job. That would not matter if he were inactive; unfortunately, he is always talking and travelling, trying to sell the government’s performance without understanding the economics. The government has abolished the planning commission; it has thereby lost an instrument of long-term economic analysis. There was certainly a lot of dead wood in the planning commission; it was poorly led, especially in the reign of Manmohan Singh, and did a lot of things that did not need to be done. But sensible management of the economy does require taking a long-term look; no other part of the government has the capacity to do so, least of all the finance ministry. Rajan was the one-eyed economist in a government of the blind; no wonder the blind got jealous and threw him out.
Does it matter? Not most of the time. Monetary policy, the preserve of the central bank, is unimportant most of the time, and the rules of making it – of changing interest rates and money supply – are pretty simple; any junior economist will tell the governor how to do it. That is why the tradition of rewarding the finance minister’s favourite bureaucrats with the governorship, regardless of their economic competence, has worked most of the time. There are times of crisis when policy-making requires higher skills; it is for such times that Rajan is one of the best. So it was stupid of the government to insult Rajan just enough to make him resign; but it has a good chance of not suffering too serious a consequence. Even if there is a crisis, an incompetent governor can often get by; he can impose a lot of restrictions on the exchange and the monetary markets. And since our reserves are so huge, there is no chance of our having a payments crisis soon even if we had holy men as policy-makers. There could not be a better time for incompetents in government.
The best thing about the episode is that Rajan is now freed of the constraints that his official position imposed on him. Even as governor, he was a riveting speaker. Now he can say and write what he likes; he can read for hours and get back in touch. So I expect him to return to being one of
the best economists to watch. The Delhi dragons have been pretty nasty to him, and he may be tempted to make sharp comments on their antics. I doubt, though, that he will; I do not think it is in his culture. But one should not rule out that he will make great jokes on them. He may teach us more about the Indian economy than he could ever have as governor. He should look for a perch outside the country, for tolerance for dissent is at a low ebb here just now. And he should not content himself with making clever remarks; he should get involved in serious policy-making somewhere else. He should emulate Parthasarathi Shome, who is often invited to advise countries in crisis; better still, he should adopt a country in a crisis, such as Brazil or Colombia, and rescue it.
Disclaimer: The views expressed herein are that of the author alone.
