IIMA Alumni Dr Raghuram G Rajan

IIMA Alumnus, October 2016 featured Dr Raghuram Rajan on its cover and carried a Cover Story with contributions from IIMA Alumni who knew Dr Rajan closely. Copied below is my response to IIMA's gesture to honour Dr Rajan:

November 7, 2016

Dear Editor

Alumni Code 1989370033

IIMA Alumnus October 2016

Many thanks for sending across the above issue of Alumnus featuring Raghuram Rajan. It was a nice gesture on the part of IIMA to have covered Rajan through a detailed cover story with contributions from those who knew him closely for decades. Myself an ExRBite, have been an admirer of  Rajan’s effort to bring some method in the madness of financial sector reforms, management of monetary policy and last but not least  infusing transparency and cordiality in GOI-RBI relationship.

Writing about Dr Raghuram Rajan in the September 2013(He had taken charge as RBI Governor on September 4, 2013) issue of The Global ANALYST(TGA), I had observed:

“The present focus on financial inclusion and taming inflation which are incidentally in tune with the vision expressed by the Governor-Designate Dr Rajan is consistent with the tradition maintained by RBI.

Once he gets a feel of the constraints with which RBI has been having a tight rope walk in harmonizing the monetary policy in the recent past with the unbridled fiscal policy guided by the pulls and pushes of a coalition government at the centre, Rajan is unlikely to toe the GOI line on fiscal deficit and Current Account Deficit, particularly that of the Finance Minister. As a corollary, Finance Minister Chidambaram may not find an RBI Governor who will support his pet project FSLRC (Financial Sector Legislative Reforms Commission) which has produced a report aimed at making RBI a ‘department’ of the Finance Ministry.”*

After Dr Rajan returned to academia on completion of his 3 year tenure, while writing on the Monetary Policy Committee in the November 2016 issue of TGA, I said:

“Contrary to the expectations of ordinary humans like this writer who criticized the attempt by the Financial Sector Legislative Reforms Commission (FSLRC) for writing a monologue report on dotted lines to satisfy certain vested interests, brushing aside all dissents even from within the Commission, we now find that the FSLRC report is being used as just a reference point for initiating long overdue reforms in the financial sector. The whole credit for this change of mindset in the finance ministry should go to one individual Dr Raghuram G Rajan, who appeared on the scene at the right time and like an avatar, disappeared from the scene after almost completing his mission in about three years.

At the risk of repetition, let us recall S S Tarapore’s May 2013 observations on FSLRC (quoted in January2016 issue of The Global ANALYST): “The Commission recommends the setting up of a statutory Monetary Policy Committee (MPC) to take executive decisions on monetary policy with each member having a vote and the Chairperson having a veto, which must be explained with a public statement. The devil is in the detail.

There would be only two RBI members and five external members appointed by the Government. The Ministry of Finance nominee would be a non-voting member on the MPC but would articulate the Government viewpoint. With Big Brother watching over their shoulder, brave would be the external member who would deviate from the Government line. The RBI would be better off with the present arrangement.

The leitmotif of the FSLRC is to charge the gate of the temple of money with iconoclastic fervor. One prays that in this internecine battle, RBI’s Pretorian Guards fight off the charge of the Commissioners. One must remember that countries that destroy their central banks destroy themselves.”

Tarapore retired as Deputy Governor, RBI some twenty years ago. But post-retirement, literally till his last breath, he remained a watchdog of the rights and responsibilities of the central bank which he served for more than three decades. His writings and speeches during the last two decades can easily be prescribed as a treasure of teachings on policy formulation and implementation by RBI.

It is unfortunate that Tarapore did not live to see the changes that RBI under the able leadership of Dr Rajan could bring about in the concept of MPC. In effect, while the RBI Governor is now unburdened of the individual responsibility of deciding on Monetary Policy, the central bank could get the existing arrangement of Technical Advisory Committee legalized and professionalized.”

Hopefully, sooner than later, India will get the benefit of Dr Rajan’s presence back home and his participation in the country’s effort to capture a status as a developed country within a couple of decades.

M G Warrier

*Text of the article has been included in my 2014 book "Banking, Reforms & Corruption: Development Issues in 21st Century India"