RBI Governor Rajan’s exit: Swamy wins but India loses
The lack of discipline within India’s ruling Bharatiya Janata Party enabled the political maverick and MP Dr Subramanian Swamy to carry out reckless attacks on the economic and monetary policies of Reserve Bank of India Governor Raghuram Rajan and probably made the official decide not to pursue a second term. By the time Prime Minister Narendra Modi woke up to discipline Swamy, the damage was done. The departure of one of the best central bankers in the world at a critical juncture will inflict severe damage on India’s economy
The circumstances leading to Raghuram Rajan’s exit from the Reserve Bank of India raise doubts about the central government’s commitment to keep the growing economy on the reformist path.
Another disturbing thing is the emergence of a loose cannon like Dr Subramanian Swamy as the voice of BJP-led government. Swamy’s tirade against him only forced Rajan to step down.
Prime Minister Narendra Modi, who usually remains silent at critical moments, woke up late again to say some good words about Rajan.
When Rajan became Governor of the RBI in September 2013, the rupee was in free fall, the economy was stalled and inflation was in double digits. He proved to be the steadying hand the economy needed.
He did not, however, subscribe to the triumphalist view of India as the fastest-growing major economy in the world. Instead, he pointed out that its growth was built on shaky foundations, which called for deep economic reforms.
He said the benefits of growth might have been disproportionately cornered by political and economic elites . He knew India needed a central banker who could stand up to political pressures from bankers and others eager to maintain the status quo.
Senior journalist Swaminathan S Aiyar dismissed criticisms that Rajan’s tight money policies were ruining Indian industry, saddling banks with bad debts, and slowing economic growth. If Rajan exited, so will billions of dollars from India, Aiyar wrote adding stock markets would crash and currency markets would panic.
He held the view that Rajan had greater credibility with global investors than those who criticised him. Rajan was appreciated for stabilizing the Indian economy and for his toughness and independence.
The Indian Express appreciated Rajan’s refreshing approach to public policy issues and his ‘thoughtful interventions’ on public issues and the economy. Ruling party politicians were wrong to attack Rajan for his views, it said.
The paper added that “no central bank governor has had to face the sort of personal attacks the Governor of the Reserve Bank has been subjected to.”
Modi and Finance minister Arun Jaitley could have stopped Swamy’s virulent attacks on the Governor. They had a duty to intervene and support the besieged official.
Nobel Prize winning economist Amartya Sen regarded Rajan as “one of the most skilful financial-economic thinkers of the world.”
According to Professor Ashok Desai, Rajan was so good he was “wasted on this government.”
Ignoring all this, Swamy continued his attacks allegedly on behalf of the government. His ideological and personal criticisms of Rajan were based conservative thinking. For instance, he accused Rajan, who has a US Green Card, with not being ‘mentally fully Indian’ and being part of a “US plot to ruin India.”
Swamy alleged that Rajan was deliberately “wrecking the Indian economy.”
In a letter to Prime Minister Modi (May 23), Swami made six specific charges against Rajan:
- Rajan was raising interest rates and causing recession in domestic small and medium industry with consequent massive unemployment
- He allowed ‘Sharia’-compliant Muslim organizations to be set up despite a Finance Ministry ban
- He had a US Green Card and was not patriotic enough to be unconditionally committed to “our nation”
- He passed on confidential and sensitive financial information to people around the world on his private e-mail ID
- He used “pejorative sarcasm” against the government of Prime Minister Narendra Modi
- He was member of the Group of 30 set up to defend “US domination of global political economy.”
Swamy next turned his ire on Arvind Subramanian, chief financial advisor in the Ministry of Finance, for his “disloyalty to India.”
He described Subramanian as a ‘Trojan Horse’ and charged him with having advocated against Indian interests in his testimony to the US Congress.
Swamy made similar charges against Shaktikanta Das, secretary, Ministry of Finance.
Journalists described the core of Swami’s attacks as constituting ‘paranoid xenophobia’. Modi himself had approved of non-resident Indians and persons of Indian origin (PIOs) whom he had wooed for over 15 years. He even set up a Ministry of Overseas Indians (MOI) which was later merged with the Ministry of External Affairs (MEA).
Modi has employed several non-resident Indians such as Prashant Kishor, Jayant Sinha and Arvind Panagariya in the government. US citizen Rajiv Malhotra, the Hindutva-inclined businessman from New Jersey hailed by Swamy as “Our Hindu New Frontier Warrior,” often visits India and is felicitated by Hindu politicians and others.
Swamy was also personally critical of Finance Minister Arun Jaitley for not dressing like a dignified Indian while abroad.
What is shocking is that his criticisms against Rajan seemed to win praise from the ruling party and its ideological backbone, Rashtriya Swayamsevak Sangh (RSS).
Writer Dhirendra K Jha notes that while the ruling BJP would like to stop Swamy and his ‘swadeshi’ intellectual orientation, RSS wants to discuss issues raised by Swamy.
Modi’s keenness on Foreign Direct Investment (FDI) and his alleged love of the United States are also causing concern in RSS. For instance, the central government’s recent approval of 100% FDI in defense, civil aviation and pharmaceutical sectors has upset RSS at the workers, peasants and cultural fronts.
A meeting of these organisations are expected to be held at Kanpur, Uttar Pradesh state, from July 13-15. Economic issues including those raised by Swamy are likely to be discussed at the meeting. The discussions, which will precede the monsoon session of Parliament, are expected to raise heat and dust in the Indian politics.
Subramanian Swamy, regarded as loose cannon in BJP, is very influential with the RSS. In April 2016, Swamy was rewarded with a seat in the Upper House of Parliament. RSS-backed Swamy’s voice cannot, hence, be easily ignored by the BJP–led government in New Delhi.
Kesavan writes in Telegraph that Swamy “combines a genius for litigation with a real gift for public provocation.” As an English-speaking Hindu majoritarian intellectual, he has his own political influence.
Swamy’s profile attracts public attention. He holds a Harvard University PhD and Professorship in Economics. He was a former cabinet minister. He was president of the tiny Janata Party which merged with BJP in 2013.
In the final analysis, by attacking RBI governor Rajan which was quickly followed by the official decision not to offer him an extension, Swami proved that he was the government’s voice.
The writer was Director of the Research and Policy Division of the Ministry of Home Affairs in the Government of India. He was Director General of Police in Northeast India. He is the author of several books including ‘State, Policy and Conflicts in Northeast India, Routledge, 2016