The man from the IMF

The Man From The IMF

Mr. Rajan, all of 50 years old, has got himself an executive job as the country’s Central Banker as of early September 2013. He will take over from the stubborn but failed inflation fighter Mr.D. Subbarao. One can’t say for sure, but this might be the first time Mr. Rajan is not in an advisory role.

Mr. Rajan, like the Manchurian Candidate perhaps, is, according to the Millenium Post, a brave little newspaper with great production values, a US Citizen.

This is scandalous on the face of it in a country teeming with eminent economists, but no more so than an Italian-Indian running our country. And obviously, our copious Constitution, Ambedkar, RIP, and his erudition notwithstanding, is silent on the matter.

Hmm..  still, Our Central Banker, presently, till September, Chief Economic Adviser with a room next to the vast imperial playground of a room occupied by the Finance Minister, for the third time, at North Block, is an American of South Indian origin.

He will apparently go off from time to time as visiting Consultant to the US Fed etc. as well.

Meanwhile, poor Mr. D.Subbarao will be, for historical footnote purposes, if he isn’t already, something of the fall guy for the mishandling of India’s macro-economy so far during UPA II.

This is a charade, because as Mr.Swaminathan Aiyar pointed out on the front page of the Economic Times of the 7^th of August, the RBI Governor is on a tight leash from North Block. He is, by definition and design, far from independent, and so Mr. Subbarao did nothing other than what the Finance Minister, and his masters, permitted and wanted him to do.

But scarily, Mr. Rajan’s pet obsession is also inflation like Subbarao’s. He has built something of a career on the notion. He might have been called a “Luddite” by his Harvard educated boss in the IMF, where he was also Chief Economic Adviser earlier, for predicting the US economy crash of 2008. But his economic logic was essentially how can you borrow so much and expect to get away with it, or what we readily see is good old Indian fiscal conservatism.

 But fortunately, Europe and America and Japan 2013, after attempting to rein in inflation with disastrous and alarming results of a suicidal bent, what with their weighty economies in dire peril; have said to perdition with inflation. They have plumped instead for growth, by coaxing a rise out of it with stimulation after stimulus!

Talk about ageing Captain America and the Sick Men of Europe, no longer making their dares stick, it has not worked too well even then and despite.

 The ravages of a profligate borrow and spend economy, as Fanny Hill might have said amongst the vials of laudanum, do need time in convalescence. But the exciting animal exuberance of  Capitalism thrives on this principle and lust for profit; so much so that cannot be eliminated, any more than sin, or retribution for that matter.

Japan too has been a recessionary economy, but for decades already, with what seems a quaint $ 500 billion debt initially, that it nevertheless could not ever subdue. But in the developed world, these things still appear genteel on the surface.

A big economy has many a screen to hide behind after all, and on the face of it still looks like always. Not so, a wannabe, less than one trillion dollars’ worth of official and chaotic Indian economy. For us, the tears in the fabric start to show quickly, and the wash and wear grows rapidly threadbare.  

And Mr. Rajan is expected to be the Sir Galahad who fixes things. He is confronted with inflation, lack of growth, and huge current account and fiscal deficits that threaten to trigger financial obligation defaults.

What he will succeed in doing, Mr. International Rajan, if he takes it into his head, is get India some large loans to beef up its investment in infrastructure using his international recognition. And this might perk up both the GDP numbers and the national image a bit.

He might not be able to do much quantitative easing, that is lowering of interest rates, till after the elections, because imported petroleum based inflation may not let him. But he might ease the norms to allow the privates to borrow abroad more freely, assisting by his already readied “quasi” Sovereign Bonds aimed at NRIs, and enable the spending of some of that money domestically.

He might even provide some incentives to make it happen. He might do the same for our under-funded PSU banks and make things freer for the private and foreign banks as well.

At least, if he agrees to work in tandem with a Federal Front Government, or a Narendra Modi led BJP one, he can make a difference. The Congress led UPA, that is appointing him, will not be around for most of his tenure of 3 years, thank God.

But let us see what the young but most distinguished future Governor of the RBI makes of it.

(839 words)

August 7^th, 2013

Gautam Mukherjee