Of experts and politicians – The Raghuram Rajan Drama: C. P. Chandrasekhar


The attack on Raghuram Rajan spearheaded by Sangh Parivar trouble-maker Subramanian Swamy has disturbed even those who otherwise support Prime Minister Modi’s government. The attack has received even more attention because it preceded Rajan’s surprise announcement of his departure from the Reserve Bank of India (RBI), prior to the government’s decision on whether he should be given a second term. It is clear from his letter to the RBI’s staff announcing his decision to keep out of the race for the job as central bank chief, that Rajan would have liked to serve a second term. But sensing that he was not going to be offered the extension and could even rejected if he applied for it, Rajan chose to step down.

It would be giving Swamy too much credit to hold that his letters to the Prime Minister claiming that Raghuram Rajan was wrecking the economy, was not “nationalist” enough because of his American green card, and was a stooge of the Congress, were responsible for the latter’s decision to exit. Swamy is widely seen as a maverick, and Rajan is too smart not to know that if anything, it is the BJP MP’s credibility that has been affected. What must have irked him more is the failure of the government and the PM to stand up for him. That silence possibly explains the arrogant shift of Swamy’s target of attack to the Chief Economic Advisor, Arvind Subramanian, who is more vulnerable because of his advice in the past to the US government, calling for stronger action against India on intellectual property issues.

But in Rajan’s case, Modi’s silence suggests that Swamy was only mouthing in crude fashion a dislike for the RBI governor felt by the core team of the government and those running the Sangh Parivar. The reasons for that dislike are not too difficult to find. Principally, Raghuram Rajan showed the temerity to criticise the Sangh Parivar’s ideology of intolerance, even if in a rather convoluted manner that did not actually refer to the Parivar. Intolerance, he had argued, by shutting out ideas and dissenting views, can affect the thought environment in ways that are bad for growth. In this view, we need tolerance because we want to promote economic development. A peculiar case for tolerance, even if critical.

But this roundabout effort at criticism was partly ignored by the Parivar and its spokespersons. What did evoke a response was his candid questioning of the hype around India’s economic growth rate on which the Modi-sarkar survives. While attending the spring meetings of the IMF and the World Bank, Rajan noted that India being considered the “bright spot in the global economy” was akin to the one-eyed man being king in the land of the blind. Don’t make too much of the growth rate was what he was saying, throwing doubt on the controversial new series GDP figures as well implicitly pointing to other evidence that things were not all that good. Among those who responded was  Modi-devotee Commerce Minister Nirmala Sitharaman, who held that Rajan’s choice of words was unfortunate, and diverted attention from the actions being taken by her government that were delivering results.

The open and covert push for Rajan’s exit has also been attributed to the fact that Rajan has not been all too accommodative of the government’s (including Finance Minister Jaitley’s) demand that interest rates must be brought down sharply to push growth. His commitment to the economically conservative and discredited ‘inflation targeting approach’ to monetary policy, has made him a consistent defender of a higher interest rate regime, on the grounds that actual inflation and inflationary expectations required erring in that direction. But difference over this opinion is no real explanation for Swamy’s tirade. That emerges from his decision to attack Arvind Subramanian who had come out in support of Finance Minister Jaitley and against Raghuram Rajan saying that the threat in India was not inflation but deflation that called for a rate reduction.

In fact, the agreement implicit in the difference of opinion needs noting. Both sides accept the neoliberal view that monetary policy in the form of interest rate adjustment is the principal instrument available to address either low growth or high inflation. The real “economic” disagreement is on how far the independence of the central bank and its governor (as advocated by neoliberal ideology) should go, when it comes to deciding on which is India’s macroeconomic problem number 1 (growth or inflation) or deciding where interest rates should be fixed. Such disagreements are not too difficult to resolve, especially given the government’s desire not to be seen as sacking a central bank governor and Rajan’s desire to stay on and ‘serve’. While Rajan may have been carried away by his celebrity economist status and may have misread the government’s commitment to giving the central bank greater independence, he would be hardly be right in claiming that an unelected, so-called “technocrat”—even if from Chicago’s Booth School—must have precedence in economic decision-making over an elected government. He would have relented if the government had not. So the real problem that led to Rajan’s exit was that he had not given adequate cognizance to the possibility that retaining his image as a ‘liberal’ when it comes to religious and cultural issues will not sit well with his role as a functionary under the NDA.

What explains the fact that a successful academic with the international reputation and exposure that Rajan has, is willing to serve a government that would expect him to give up his independence to speak his mind on issues so crucial? Could it be that Rajan believed that such rules would not apply to a non-resident technocrat like him, especially given his reputation? That is difficult to believe of a person who was smart enough to win recognition (even if incorrectly) in certain circles of being the one who predicted the 2008 financial crisis. At most he could have believed that since the leadership of the NDA had made clear its commitment to a neoliberal path, which Rajan is also ideologically committed to, he would be given the freedom to pursue “his” economic agenda without getting him involved in the politics of the NDA.

To the force of this presumption of space for independence must possibly be added the intriguing desire of Indian economists resident abroad to engage in policy-making or in policy debates in far-away India. Whether that has to do with their origin setting a glass ceiling to engagement in such activity in their adopted nation of domicile, a nostalgia-driven desire for recognition in their country of origin, or a career move based on requirements set by their foreign hosts, is not fully clear. But evidence that such desire exists to an extent where a Rajan or Subramanian would be willing to ‘serve’ even under a government perceived as intolerant, is substantial.

What the Rajan episode shows that this too difficult a tightrope to walk. What is unfortunate is that rather than recognising this, the Rajan-exit debate has focused on trivial or non-existent differences of opinion between competent, ‘technocratic’ economists and their opportunistic political ‘masters’. The fact of the matter is that they are all neoliberal, mostly in favour of close ties with the US, and only tangentially concerned with the fact that this strategy does not deliver to India’s poor much of what it has been promised for close to 70 years. If they cannot stay in service despite their desire to do so, it is because the belief that they can get a modicum of ‘independence’ under a government like the NDA is completely misplaced.

CP Chandrasekhar is Professor at Centre for Economic Studies and Planning, JNU

2 thoughts on “Of experts and politicians – The Raghuram Rajan Drama: C. P. Chandrasekhar

  1. I agree with the substantive part but perhaps raise some questions for the sake of argument which will settle some of the tension inherent in the system and of course hazards of trying out an independent economist-reputed global academia as RBI chief in future. Some such issues are as follows.
    1. Major shift in Rajan’s time is to introduce monetary targeting which makes RBI accountable which presupposes freedom to take policy decisions on interest rates which is a major plank for Swamy like attack found favour in ruling dispensation and also popular media. Govt cant have the cake of holding RBI accountable and not allowing it space for pursuing its goal through monetary policy action. Agreed that supply side is more important and Govt has major role in this regard. RBI does send such research inputs to Govt but its Govt’s domain to execute. Interestingly, earlier RBI governors had opposed inflation targeting (read Subbarao’s latest comments) for such reason. Rajan had smartly extracted this space from Govt.
    2. On the public debt office front, more than Rajan, the former bureaucrat Guvs have opposed for valid reasons and Rajan agreed to its creation as advocated by his Committee in his pre RBI days. The safeguards delaying the process is prudent.
    3. Hazards of getting intellectuals: Rajan is first such RBI governor in recent time and thanks to his partial indoctrination in Government before RBI, has adjusted well with the NDA govt having served almost his full term. Any intellectual would voice his/her views and thus not an issue to labour much. Even seasoned bureaucrats turned Governors found their freedom in RBI and differed with Governments in the past but perhaps not as erudite as Rajan. All of them were allowed more than three years by adjusting with the govt. Rajan had the option of getting back to greener pasture.
    4. Rajan had to face the brunt of stifling credit growth by forcing banks to follow stringent norms and more the attack of crony capitalism voiced through Swamy likes. Though he had the soft option going slow on NPA recognition on this score, being trained in crisis economics he believed in the countercyclical measure of recognising NPA when the economy is doing well.
    5. On balance, RBI -Govt tension is nothing new, but the manner the Rajan saga was played out engineered by Swamy innuendos was unhealthy and the Govt could have responded to Rajan’s tryst to make it smooth. Rajan could afford to call the ‘bluff’ creating almost hysteria in NRIs of USA where I am writing this quick piece.


    More than his economic policies, which may have inclination towards pro- rich corporates, Rajan is a victim of his political overtones in expressing dissent on the intolerance. He has now the experience of ‘ political economy’ in India which dominates over ‘ economic politicians’ .

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