Why Rajan had to go: Can the RBI governor simultaneously be a public intellectual?

In the extraordinarily shrill debate that has followed Raghuram Rajan’s announcement that he won’t seek an extension of his tenure as RBI governor, one question that repeatedly crops up needs to be tackled: Is the central banker a public intellectual? Let’s expand this a little. Even if the central bank chief is a celebrated economic thinker who brings remarkable intellectual heft to the table, to what extent can that individual indulge in ‘free-thinking’ and keep on making intemperate statements on public forums which can be perceived as unduly critical of the government, considering that the RBI chief is also part of it? [caption id=“attachment_1085401” align=“alignleft” width=“380”] Outgoing RBI governor Raghuram Rajan. AFP[/caption] We must be careful here. This is not to suggest that the head of the central bank should act as a government cheerleader. That is a ridiculous leap and is being used deliberately by a section of commentators to stonewall a legitimate question: Doesn’t a very outspoken and contrarian RBI governor — who may be wonderfully capable — undermine the very institution that he represents when makes incendiary comments such as ‘one-eyed king in the land of the blind’ or issues tacit references to Hitler while talking about ‘strong governments’, etc.? By publicly criticising the government on sensitive issues such as the ‘intolerance’ debate, doubting the GDP numbers or casting aspersions on Central policies such as Make in India, Rajan was performing his duty as a public intellectual but at the same time, he was transcending his role of being an independent, technocratic RBI governor heading a strong, semi-autonomous institution and becoming more of a political figure. By holding forth on issues that were clearly political in nature, the RBI governor was politicising the institution and making his seat vulnerable to political wrangling and that surely runs at odds with the purpose of his chair. To recall, the RBI isn’t really an autonomous institution. The Reserve Bank of India Act, 1934, gives the government the power to direct it which also includes appointing the central bank governor and four deputies. The Act also allows the government to technically supersede the RBI if it is convinced that the central bank has failed to carry out its obligations. The chair on which the central bank chief sits is meant for regulation, not to initiate public debate on the government’s many faults, even if the holder is convinced that he has a strong case. At the end of the day, the government has the mandate of the people and Prime Minister Narendra Modi, not Dr Raghuram Rajan, is accountable to the electorate. Once again, let us be clear that while Rajan is more than welcome to pillory the government — as most public intellectuals, members of the academia, civil society or the media regularly do — but he cannot do so on open platforms while holding on to his chair. Does that mean that a man of such integrity, depth of knowledge and sagacity as Rajan should have acted as a pliant puppet to the Modi government? Does it automatically follow, when it is being said that his chair is not meant for public criticism, that Rajan should have made better use of a sellotape? Absolutely not. As a universally acclaimed economist who thinks out of the box, the RBI governor could have provided valuable critiques to the government policies, told it where it is going wrong (like slowing down the issuing of Jan Dhan accounts, for instance) but he would have been far more effective and commanded more say without making the government needlessly antagonistic had he rendered such policy advice in private than in public. As Pratap Bhanu Mehta pointed out in a recent Indian Express column, “Outsiders can provide critiques but there is nothing like a warning from within government to concentrate the mind. Institutionally and structurally, the RBI is the only counterweight left to perform this function. The government must recognise that this critique, inconvenient as it is, enhances the credibility of the system as a whole. And the economy is as much about credibility as anything.” But then to expect Rajan to play by the book is wishful thinking. A fiercely non-aligned thinker and a man who thinks little of political correctness before speaking his mind, Rajan, in 2005, as a professor at the University of Chicago’s Booth Graduate School of Business, took down Alan Greenspan just as he was about to retire as America’s most celebrated Federal Reserve chairman. And that too on an occasion where high-powered economists of the world had gathered to honour the outgoing central banker, a giant of 20th century’s economic policy. It was inevitable that Rajan would be his own man and also equally inevitable that he would leave the confines of a seat which restricts him from giving free air to his ideas. The development is unfortunate and the government could have shown more eagerness to retain him instead of putting him through the due process but to say, as some have, that Rajan’s departure is an indication of Modi government’s ‘intolerance’, is specious nonsense. If the NDA government wanted a ‘yes man’ on Mint Street, the Finance Minister wouldn’t have complemented Rajan’s tight monetary policy with an equally strict fiscal discipline. And Modi government would have shown Rajan the door much before his term ended.