Dear Raghuram Rajan, don't let the 'system' kill your reformist spirit

On his first day in his new job, Chief Economic Adviser Raghuram Rajan lived up to the recently articulated dictum of Prime Minister Manmohan Singh: silence is infinitely superior to a thousand answers. And that’s probably a good sign…

Turning up at the Finance Ministry on a decidedly wet day in Delhi, Rajan declined to offer the usual scrum of assembled journalists and television cameras the sort of insta-punditry soundbytes that the hypermedia seeks out from economic policymakers.

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To repeated questions about the many ailments that afflict the Indian economy, and the remedies to revive growth, Rajan steered clear of offering “quick-fix” solutions that don’t mean a thing.

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In that respect, he has already shown himself up to be vastly different from other policymakers in the Finance Ministry and assorted departments, who have yielded too readily to the temptations of the open mike and the eagerness to implant oneself onto television screens.

Such exertions in the past have only ended up sending mixed messages that amplified the internal incoherence within the government.

Most of the estimates from these experts-on everything from the growth outlook to inflation expectations-ended up being widely off the mark, which strengthened the suspicion that the government was just as clueless as the rest of us: that’s not a message intended to reinforce trust in the government in times of economic crises.

In any case, Raghuram Rajan’s prescriptions for the Indian economy are, in a sense, already in the public domain. In his economic commentaries and at least two speeches in recent months-one at the convocation of the Indian School of Business (ISB) and the other at a book release event ( here)-he listed out pretty much everything that was wrong with the Indian economy, the political class, the bureaucracy-and even the private sector-all of which inhibited India from realising its economic potential.

And he did so with refreshing candidness that no bureaucratic babu is capable of in these days of a “committed bureaucracy”.

“Our politicians,” he noted, in his ISB convocation address, “seem unable to come together to vote for growth-enabling reforms, even while they are willing to join hands in every populist vote. Coalition dharma seems to fail us only when steps to sustain growth have to be taken. Alarm bells should sound when domestic industry no longer wants to invest in India, even while eagerly investing abroad.”

And he was equally unsparing of both the government and the private sector. “The government,” he noted, “does too much of what it should not do, too little of what it should do, even while being capricious and unaware of its limitations. Unfortunately, the private sector has not earned the trust of the broader public.”

Making a strong pitch for less government in the realm of business, Rajan noted how the different stakeholders were milking the welfare state: “the public sector workers who have cushy undemanding safe jobs, the unions who enjoy the power, the occasional corrupt executive who rakes in bribes, and the minister who enjoys the patronage.”

That’s the kind of talk that the policymakers and bureaucrats, who appear to have lost faith in India story and the infinite possibility that reforms will open up, need to hear.

But will Rajan be able to speak truth to power, or will the “system” swallow him-in the way that it has blunted the attempts at reforms by several others?

Arun Shourie, who served as Disinvestment Minister in the NDA government, has noted how the administration is entangled in red tape, and how it ensnares others in it, and wrestles down even the ones with the brightest ideas to the lowest common denominator of inactivity.

“The system is such that it swiftly entangles… every effort to reform it,” Shourie observes in his book Governance. “The core competence of many a civil servant, and the reason he is so indispensible is that he knows the successive turns of this maze, he knows the sign-posts along it, and the wayside inns in which one can safely put the matter to rest.”

The maze, he adds, “dulls the sharpest of minds. It changes the very idea of what ‘work’ is…. We still have individuals in the civil service who are outstanding by every standard. But the system chisels every creative impulse out of them.”

Shourie’s observations, of course, apply to the giant bureaucratic machine, which too will be looking to weave circles around Raghuram Rajan. The man himself seemed to make light of it, noting that he had been an international bureaucrat (in the IMF) earlier and so “bureaucracy is not completely foreign to me.”

But Raghuram Rajan will also likely face formidable obstacles from the UPA’s political establishment, which is just as uncomfortable with his reformist call to arms.The talk is that when P Chidambaram was offered the post of Finance Minister (after Pranab Mukherjee was elected President), he had told Manmohan Singh that he would accept it only if he was given a free hand with policy action, “even if it means stepping on a few political toes.” If Chidambaram has in fact earned himself some space for reforms, Rajan’s counsel in the areas that he has already articulated will provide him the sheet anchor within the administration to take policy action forward.

But then, politicians have the luxury of alibis for inaction. For a technocrat like Raghuram Rajan, who has in a sense staked his reputation in taking up this challenging assignment, failure isn’t an option. Here’s hoping that, for his own sake and for the sake of the economy, that he will continue to speak truth to political power and simultaneously cut through the red tape that has the administration all bound up.