Rajan’s exit from the RBI has
generated as much press and controversy as his three year tenure as the
governor of the central bank. It would have been surprising if it were any
different. In a country of subdued central bankers, Rajan’s personality stood
out as much as his legacy of being one of the leading Indian economic figures
in the world today. He is articulate, he is confident and he has an enormous
capacity to withstand pressure. He undertook banking sector reforms, which will
show their mark for a long time to come and during his tenure, inflation rate
halved, albeit with generous help from the global commodity price decline.
Yet, there are undeniable
benefits to Rajan now being free for pursuits other than being the governor of
the RBI. For one, someone of Rajan’s calibre is an asset for any government at
a time when the country is facing global headwinds like never before and can
benefit from someone who has a global perspective and work experience. He has
also an asset in dealing with the NPA challenge faced by India’s banks. However,
once structural change has been initiated, it is a question of only seeing it
through with an appropriate implementation mechanism in place. Therefore,
beyond a point, his role transitions from being a builder of systems, to an
overseer. Further, going forward it can reduce to tweaking interest rates and
liquidity management. It is thus an incremental role, and that might not always
do justice to someone of Rajan’s talent.
If the centre requires his
expertise on further cleanup of Indian banks, there is no reason why a new
committee cannot be appointed under his leadership. He has already said that he
is there to work for his country when required in the future. For specific
areas of work, he does not also need the entire paraphernalia that comes with
being the RBI governor. Particularly, so far as it also entails moving the
policy repo rate up and down by 25 basis points on a bi-monthly basis (or not).
Any competent economist, who has been in the system for a reasonable number of
years of experience, can take over the responsibility.
Bringing in Rajan’s talents to
aid with specific areas would also relieve him of constant spotlight. While spotlight
is crucial at times when important points need to be made to a wide audience,
not everything that an economist or policy maker does, requires it. In fact,
research, which then drives policy action, by itself requires a lot of
reflection, quiet and an environment free of distraction. When there is
constant questioning and debate on the one hand about everything that is in
process on the one hand and insults and praises being heaped on the other, this
is hardly an environment conducive to anyone’s best work.
In fact, allowing him to operate
from an academic environment while also engaging with the government on
specific issues gives him a tactical advantage. His detractors have less
ammunition to either target him or engage him in controversy, while the
critical work that requires doing gets done. Even if his move to resign from
the RBI is a retreat on his part, it still has strategic benefits in the form
of a better vantage view and a more secure position to work from.
Also, do recall, that Rajan’s highlight
research in recent memory has been calling out the recession. From the person
who spotted that, we really look for more seminal research, even if it is a
very tall order. After all, there is not a raging depression to call out every
day. But the point is, that in the event that a black swan does threaten to
show up, he has more credibility than most others to flag it. As a policy
maker, he unlikely has the bandwidth to carry out such path breaking research.
Further, Rajan, during his tenure
as the governor has blossomed into far more than just a leading economist, to
become someone with widely expressed view on current affairs, ethics and social
condition. For anyone who has been following his public talks during his tenure
as the governor, it is clear that his interests range from literature and
politics to of course economics and policy making. That he was an RBI governor
all this while raised the bar for everyone’s thinking. And it has probably left
everyone more widely intellectually enriched than would have been possible
otherwise. Being free from the day to day responsibility of being a governor of
a central bank, to being a thinking academic, might only fuel this aspect of
his personality even more. His lectures and interviews have already been
peppered with John Donne and Tolstoy, and it would be good to see more of his
interests get drawn out as he expresses his views.
Rajan may have his detractors,
but no one doubts his high intellect. And irrespective of where he is and what
he does, just by virtue of who he is, there is so much that he can give to the
world in terms of better thinking. He has mentioned in his parting note to the
RBI employees that his ultimate home is the realm of ideas. And I am sure there
are plenty more that we will get in the coming years, from him, that will
continue to grow us.
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