Many meanings of ‘jugaad’: Why Raghuram Rajan's talk should strike a chord with North Block

The average Indian entrepreneur has always a way of finding solutions to everything through quick-fixes or ‘jugaads’ — be it to escape the taxmen, to get bank finance and to not repay it, or to show healthy balance sheets even when things aren’t quite healthy. On Friday, Reserve Bank of India (RBI) governor Raghuram Rajan spoke of such ‘jugaads’. Rajan had a candid advice to those who endorse it — don’t get into ‘jugaads’, instead try for the long haul. Only that will sustain in the long-run. “Jugaad or “working around” difficulties by hook or by crook is a thoroughly Indian way of coping but it is predicated on a difficult or impossible business environment. And it encourages an attitude of short-cuts and evasions, none of which help final product quality or sustainable economic growth,” Rajan said while delivering the C K Prahalad lecture on Friday. [caption id=“attachment_2439422” align=“alignleft” width=“380”]  RBI governor Raghuram Rajan. Reuters[/caption] Rajan’s ‘jugaad’ talk is interesting; one can derive many meanings from it given the position and situation he is in. The internationally reputed economist, who later took up the role of a central banker and now well familiar with the Indian conditions, has encountered ‘jugaads’ when banks resorted to masquerading potential non-performing assets (NPAs) as restructured loans and industries endlessly demand bail-outs and farmers seek special exemptions and interest rate subventions. Banks’ practice of masquerading NPAs in the recent years — technical adjustments between the lenders and wily promoters — has resulted in large-scale increase in total chunk of restructured loans in the banking system. They now constitute Rs 5-6 lakh crore in the industry. “We have to have the discipline to stick to our strategy of building the necessary institutions and creating a new path of sustainable growth where jugaad is no longer needed. For this, we need the understanding and co-operation of business, not impatience and pressure for quick, impossible fixes. Only then can we realise our true potential as a nation,” Rajan said. Rajan’s comments could also be a subtle message to the governments seeking quick-fixes for struggling economies through monetary policy easing, even when the policy can help only partly and factors hurting growth and preventing economic rebound lie in resolving structural problems, where the action should come from the governments and not the central bank. “I think it is quite legitimate for central banks to say at some point we can’t carry the burden (of reviving economies) ourselves…,” Rajan said in August, speaking to BBC in an interview. “Don’t keep asking us (central banks) to do more because at some point we get into territory where the consequences may be more bad than good if we actually act.” To be sure, Rajan was speaking in the context of global central banks and not specifically in Indian context, but it holds true in India as well. Indian politicians have often resorted to ‘jugaads’ such as farm loan waivers and interest rate subsidies, citing distress in the agriculture sector. India has seen a massive loan waiver in 2008, when UPA sponsored a whopping Rs 70,000 crore waiver programme for farmers. In recent past, a similar requests were made by two state governments — Andhra Pradesh and Telangana. As the past evidence shows, debt waivers have had a disastrous effect on the credit culture of even the good borrowers. Rajan has questioned this ‘jugaad’ too. “How effective these debt waivers have been?" Rajan has asked. “In fact, the studies that we have typically show that they have been ineffective. In fact, they have constrained the credit flow, post waiver to the farmers,” Rajan said. Further, the governor has also spoken on subsidies. In December, 2014, Rajan said, “The positive aspect is that you are giving a benefit, a cheap credit to agriculture. The concern, however, is whether this credit is being put to right use or is it leading to over indebtedness or distortionary investment. “We, for example, have crop loan that we have subsidised. But we don’t subsidise longer term loans. Does that change the nature of what kind of activities are subsidised in agriculture? So that’s one issue…,” Rajan said. Clearly, Rajan always believed in addressing the problem today rather than postponing it for tomorrow and making it worse. His comments on ‘jugaad’ on Friday, in that sense, is a continuation of his stance in various issues he has taken thus far. His plain speaking should strike a chord with the power centres in the North Block.