Mr Swamy, none of your charges against Raghuram Rajan hold water

The irrepressible Subramanian Swamy can get nasty if he guns after a person. The RBI governor Raghuram Rajan has been the subject of his recent ire. He wants the Modi government to remove him from the RBI governor’s post for three reasons: (a) he is willfully wrecking the economy; (b) he is not Indian enough and (c) he is a UPA appointee.

Raghuram Rajan and Subramanian Swamy. PTI

Raghuram Rajan and Subramanian Swamy. PTI

The fourth unstated but implicit charge is he dares to mouth unsolicited platitudes and sage advice to the incumbent government. None of these charges hold water. The second and third are so below the belt that they are not worth responding to. The first however needs to be addressed squarely. By not reducing interest rates obdurately, the charge goes, he is wrecking the economy and its growth prospects which incidentally also adversely affects the job opportunities. Since Swamy is in the distinguished company of no less than the Finance Minister Jaitley himself who also is peeved by Rajan not lowering the interest rates significantly, the charge cannot be dismissed off as a mere pique.

Inflation targeting and interest rates are related to each other. Rajan obviously believes in the monetary school-- --inflation is nothing but too much money chasing too few goods and services. That belief may be one-sided as it ignores the supply side deficiencies being responsible for too few goods and services but that does not mean he is deliberately wrecking the economy on the naïve ground that the brakes applied on excessive money supply chokes growth and employment.

Rajan might also believe with other central bankers that a central bank ought to focus exclusively on inflation targeting. Here too there can be more than one opinion but again this does not mean he is deliberately wrecking the economy. The over 5.5% growth rate recorded by India in the last year may be impressive by world standards in recent times but the Modi government is itching to break into the top league by leapfrogging at 8% plus compounded annual growth rate. Nothing wrong in aspiring for a furious growth rate but it is simplistic to underpin growth on just one factor-- -interest rate.

It is not as if loan disbursals would increase dramatically if prime lending rates were lowered with their ripple effect on the entire economy. For one, bankers are afraid of lending for the fear of failure. Yes the loans ending up sooner or later as bad. Banks are nursing an unacceptably high NPA of 12% of their loan portfolio and are therefore twice shy once smitten. Secondly, manufacturers are clearly afraid of committing themselves big unless the sentiments and the environment improves for the better with quite a few auto manufacturers making it plain that unless the demand picks up, they would rather wait and see.

Of course this may smack of chicken and egg syndrome but then you cannot blame the industry or banks for this hesitancy bordering on paralysis. In any case, growth revival doesn’t happen in a jiffy. It happens over a period of time like a long-term sugarcane crop. The government has done its bit for the long term revival by pinning its hopes on FDI. 49% in insurance and defence production with the latter enjoying latitude upto 100% are all good steps. In fact some of the leading Indian engineering companies are sewing up foreign collaboration with defence manufacturers to take the idea of Make in India forward which would give fillip to employment opportunities as well. But then you cannot goad foreigners beyond a point which is why Murli Manohar Joshi’s computer chips yes potato chips no binary postulation is faulty if not preposterous. We want foreign investments in manufacturing but foreigners as were till recently more interested in ecommerce.

Swamy should also take heart from the tireless efforts of his colleagues Nitin Gadkari on the highways front, Piyush Goel on the power front and Suresh Prabhu on the railway front. Their efforts would bear fruits in the medium and long runs. And when that happens FDI in manufacturing will also pick up because foreigners look for sound infrastructure before committing their money.

Meanwhile, Prime Minister Modi must ask Swamy to hold his guns and stop sniping at people running the show and instead concentrate on doing what he does best-- -- gunning after his Congress adversaries!

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Updated Date: May 18, 2016 10:22:46 IST

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