Elders tell us not to wash our dirty linen in public. They tell us to sort out issues without much focus. Well, that doesn’t apply to politics, especially of the Indian kind. In this scenario, it is always suggested that dirty linen should always be washed in public, and that too with accompanying comments as to how dirty it is. Cutting across the spectrum, we will see an infinite number of examples for this. Take for example, the most recent ruckus and the most active debate today - Raghuram Rajan’s exit as the RBI Governor of India. The irony is that, aptly termed Rakts, a majority of those supporting him, at least publicly, don’t even understand the basics of economics. And so do most of them, including me, who oppose his stay or question the importance accorded to him.
After all, he is just another RBI Governor for India, al beit a much better one. Are we saying that India’s economy is a joke and it is this good only because of Rajan and once he goes back, it will collapse again? Are we saying that there is no replacement whatsoever for him in the world? Full 100 marks to Mr. Raghuram Rajan at least on two counts - because of him common man at least showed some interest on economics and because of him, India got to know about the cancer eating it from inside - Non Performing Assets in banks. Below is what he did as a Governor - the good things
1. Decreasing interest rates - well, I am not too sure if it is good.
2. Reducing Current Account Deficit from 5% to 0.1%. This controlled fluctuation in currency rates
3. New Monetary Policy targetting CPI
4. Making Public NPAs
But, there were questions raised - questions over his integrity as an Indian, questions over his friction with the government and even, questions over his economic policies. I don’t care what any two penny economist says against his policy. But, Subramanian Swamy is of a different league altogether. Though an inconvenience and a loudmouth, his credentials should make us think twice if he questioned Raghuram Rajan’s policies. We should never forget that he was a Commerce Minister for India, a member of Planning Commission, a professor of Economics at Harvard and IIT Delhi, one with a considerable presence in UNO on the economic front and what not.
He asked why is Rajan bent on saving his Green Card. Well, personal but, for an American Citizen working on a deputation, will his citizenship count? Can that be contrused as a proof of foreign subservience?
Now comes the real question. And this, clearly needs an answer.
Raghuram Rajan was not interested in cutting interest rates at the speed governments wanted. Let’s try to look at it from both the angles.
Interest rates are cut faster, bringing down the savings rate to say 3% and Loan interest to 5%.
Anywhere, savings is mainly because of interest rates. If interest rates are less, salary hikes will be less and consequently, hike in prices and the overall inflation. If a person gets next to nothing, he will not save - it’s just floating money for him. The society will be happy because of increased cashflow in the near term. Now, once the person retires, he will not have a corpus to sustain him for the next few years. The government will be forced to pitch in for succour - this will increase the cost of social security enormously. On the other side, lesser rates means more chance for entrepreneurship and more job opportunities. A person need not retire at 60 but will be in a position to work till he is fit. This again, raises the same questions - are we saying a person’s life is only work? And when the person becomes infirm, who will take care of him? This is exactly the problem the West is facing today.
Now, the question is this - Are we driving India towards this impossible cesspool of no responsibility and social securities? What is the interest rate at which we are seeing this moral slide? Do we have an answer? Is this factored?
Interest rates are not cut faster and are held artificially high
Lesser savings bank interest rates mean lesser loan interests as well. The lower the interest rate for loan, the higher the percentage of people taking loans. Looking from the angle of manufacture, this means that more number of entrepreneurships. Note that this added top up is the small scale player like the one manufacturing agarbattis or match sticks. Now, if the interest rates are high, only those who can invest at those rates, viz those who are richer will invest. Because the top up which would have existed if the interest rates are lesser doesn’t exist now, there is lesser competition in the field. Are we saying that Raghuram Rajan’s policies are for bigger players only - kill the small entrepreneurs so that the bigger ones may capture the market and monopolize it? On the longer run, when foreign ownership will be allowed in India, are we saying that because of less number of players in the market, the situation will be very comfortable for takeover?
As I said before, my knowledge is a zilch in economics. But, any layman can understand these questions. Are the fears genuine? If yes, why are we not having answers for such? If they are genuine, do we have a corrective methodology?
After all, he is just another RBI Governor for India, al beit a much better one. Are we saying that India’s economy is a joke and it is this good only because of Rajan and once he goes back, it will collapse again? Are we saying that there is no replacement whatsoever for him in the world? Full 100 marks to Mr. Raghuram Rajan at least on two counts - because of him common man at least showed some interest on economics and because of him, India got to know about the cancer eating it from inside - Non Performing Assets in banks. Below is what he did as a Governor - the good things
1. Decreasing interest rates - well, I am not too sure if it is good.
2. Reducing Current Account Deficit from 5% to 0.1%. This controlled fluctuation in currency rates
3. New Monetary Policy targetting CPI
4. Making Public NPAs
But, there were questions raised - questions over his integrity as an Indian, questions over his friction with the government and even, questions over his economic policies. I don’t care what any two penny economist says against his policy. But, Subramanian Swamy is of a different league altogether. Though an inconvenience and a loudmouth, his credentials should make us think twice if he questioned Raghuram Rajan’s policies. We should never forget that he was a Commerce Minister for India, a member of Planning Commission, a professor of Economics at Harvard and IIT Delhi, one with a considerable presence in UNO on the economic front and what not.
He asked why is Rajan bent on saving his Green Card. Well, personal but, for an American Citizen working on a deputation, will his citizenship count? Can that be contrused as a proof of foreign subservience?
Now comes the real question. And this, clearly needs an answer.
Raghuram Rajan was not interested in cutting interest rates at the speed governments wanted. Let’s try to look at it from both the angles.
Interest rates are cut faster, bringing down the savings rate to say 3% and Loan interest to 5%.
Anywhere, savings is mainly because of interest rates. If interest rates are less, salary hikes will be less and consequently, hike in prices and the overall inflation. If a person gets next to nothing, he will not save - it’s just floating money for him. The society will be happy because of increased cashflow in the near term. Now, once the person retires, he will not have a corpus to sustain him for the next few years. The government will be forced to pitch in for succour - this will increase the cost of social security enormously. On the other side, lesser rates means more chance for entrepreneurship and more job opportunities. A person need not retire at 60 but will be in a position to work till he is fit. This again, raises the same questions - are we saying a person’s life is only work? And when the person becomes infirm, who will take care of him? This is exactly the problem the West is facing today.
Now, the question is this - Are we driving India towards this impossible cesspool of no responsibility and social securities? What is the interest rate at which we are seeing this moral slide? Do we have an answer? Is this factored?
Interest rates are not cut faster and are held artificially high
Lesser savings bank interest rates mean lesser loan interests as well. The lower the interest rate for loan, the higher the percentage of people taking loans. Looking from the angle of manufacture, this means that more number of entrepreneurships. Note that this added top up is the small scale player like the one manufacturing agarbattis or match sticks. Now, if the interest rates are high, only those who can invest at those rates, viz those who are richer will invest. Because the top up which would have existed if the interest rates are lesser doesn’t exist now, there is lesser competition in the field. Are we saying that Raghuram Rajan’s policies are for bigger players only - kill the small entrepreneurs so that the bigger ones may capture the market and monopolize it? On the longer run, when foreign ownership will be allowed in India, are we saying that because of less number of players in the market, the situation will be very comfortable for takeover?
As I said before, my knowledge is a zilch in economics. But, any layman can understand these questions. Are the fears genuine? If yes, why are we not having answers for such? If they are genuine, do we have a corrective methodology?
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