Tolerate wealth, don't prohibit its use: Raghuram Rajan

Noida: Calling money a “great equaliser”, Reserve Bank Governor Raghuram Rajan called for raising society’s tolerance towards wealth rather than prohibiting its use. Rajan, who recently drew criticism for comparing Indian economy as ‘one-eyed king in the land of blind’, also said he has no problem with India’s growth, but it can do better. “In a free market, all it takes to buy what you want is money. You do not need a pedigree, a great family history, the right table manners, or the right fashionable clothings or looks,” he said in his convocation address at the Shiv Nadar University here. “It is because money has no odour, because it is the great equaliser, that so many people across history have been able to acquire resources and invested them to make the world we live in.” [caption id=“attachment_2770340” align=“alignleft” width=“380”]  RBI Governer Raghuram Rajan. File photo. PTI[/caption] Making it easier for Dalits to start business can do more to social status than any reservation, he noted. “Rather than prohibiting the use of money and wealth, let us think about increasing society’s tolerance for its use,” he suggested. Lamenting that income inequality within countries is on the rise, he said the need of the hour is providing effective access to school and healthcare, a non-discriminating job market with many jobs and equal opportunities for advancement regardless of gender, race or background. “Indeed, making it easy for Dalits to start businesses may do more for their social status because money empowers (more) than many other forms of affirmative action,” the governor said. On the country’s GDP, he said: “I have no problem with India’s growth. It is doing great. It could do better”. India has emerged as the fastest growing large economies in the world with a growth rate of 7.6 per cent in 2015-16. It is projected to expand by 7.5 per cent in the current fiscal. Rajan said there is a strong link between society’s support for free markets and the fairness with which wealth and opportunity are distributed among the population. “Unfortunately, even while inequality between countries is diminishing today, inequality within countries is increasing. Today, even well-run market economies seem to be favouring those who already have plenty,” he said. This, he felt, is because skills and capabilities have become much more important in well-paid jobs, and those born under good circumstances have a much better chance of acquiring the same. “The winner-take-all nature of many occupations, where a few of the most capable entrepreneurs and the best workers take most of the income, accentuates the value of early childhood preparation and hence, the benefit of being born to the right parents in the right community,” he said. The governor said income inequality is on the rise, with some having colossal incomes and others worrying about the next meal. “What can we all do to restore faith in markets? We have to work to provide effective access to schooling and healthcare for all, a non-discriminating job market with many jobs, equal opportunities for further advancement regardless of gender, race or background,” he said. These measures will “increase the perceived legitimacy of wealth and society’s willingness to broaden the areas where it is spent,” he said. To students, Rajan’s piece of advice was that they should earn by creating perceptible value and, equally, spend to create value. “Not only will your work be more enjoyable, but you will strengthen the economic freedom we sometimes take for granted,” the governor added. Given the importance of broadening access to all the deserving, Rajan emphasised on the need for affordable educational degrees. “We also should make sure unscrupulous schools do not prey on uninformed students, leaving them with high debt and useless degrees,” he added On the regulatory front, Rajan unleashed a slew of customer friendly measures like making bank licensing process on-tap (already two universal banks have been licensed and 11 payments banks are on the way), linking bank rates to marginal cost of funds, making large foreign banks to become local subsidiaries and tap-and-go payments among others. On the policy side, Rajan and his deputy Urjit Patel would be credited for getting agreements to have an official inflation target, a more broad-based monetary policy committee and a public debt management agency outside RBI, among others. However, many regulatory autonomy proponents may blame Rajan for being party to RBI losing autonomy under the proposed new MPC which does not envisage a veto for the Governor in rates decisions. But his biggest headache has been the mounting NPAs and the recent rupee fall. Despite efforts from day one and putting in new structures to improve the balance sheets of banks, bad loans and restructured accounts have soared to 13.4 per cent of the system as of Q1 this fiscal year. Similarly, the recent currency war launched by China amidst its slumping economy and the resultant flight of capital from across the world, (FIIs have pumped out over Rs 17,000 crore in August alone) the rupee has been at the receiving end. Last Tuesday the rupee had slumped to 66.65, while its historic low was 68.85 on August 30, 2013. Yesterday the rupee lost five paise to 66.24 to the dollar. Industry and analysts are blaming high interest rate of 7.25 per cent for the low credit growth, which at little over 8 per cent has hit a two-decade low. “Rajan’s focus on price and currency stability with absolute clarity has been his outstanding achievement,” is how domestic brokerage Centrum Capital’s Sandeep Nayak describes the two Rajan years. May be the best way to describe Rajan is to quote his own words that “the central banks are not the cheerleaders of the market.”