Current Affairs

Reserve Bank's Ex-boss Blasts Indian Government

in a Political Speech in the US

DN Verma

Reserve Bank of India’s former Governor, Raghuram Rajan, seems to have turned politician. There is no ban on doing so but what he has done doesn’t fit into any proper framework.

Rajan has devoted a better part of his recent speech at an American University blasting Indian government and its economic policies. He even was unhappy at the Abrogation of Article 370, a temporary provision of the Indian Constitution about Jammu & Kashmir – a stand that fits with Congress party’s official position, as well as some other opposition parties and groups. 

After reading his speech one would not be wrong to conclude that the economist-turned (presumably) politician is probably seeking, or be offered, an opposition party ticket to contest the next election. That may or may not happen but his current views, expressed in no uncertain manner, indicates a political ambition. . 

His main thrust in the speech at Brown University in the United States, was decrying ‘majoritarianism’ in India and blasting Modi government’s economic policies that, according to him, are taking the country ‘down dark and uncertain path.’ He also criticized Modi government’s ‘authoritarianism’ in the same vein.

Rajan’s complaint is also that the country’s government was weakening ‘institutions.’  

Painting a very dark picture of the nation’s condition, Rajan said the government’s economic performance is not sustainable and that there is a risk of the country going the Latin America way in terms of populist policies. 

He criticized demonetization, the welfare programs, spending, and what he termed as lack of progress. (He was unhappy that the Government had taken the decision to demonetize high value currency while he, as the Governor of the Reserve Bank of India, was not in favor of the move). Rajan was reported to have been consulted about demonetization, though it was obvious the government did not agree with his views. 

Another sore point with Rajan and his outburst might be that he was expecting, and was agreeable to, an extension in 2016 as the Governor but the Modi government did not do that. He had to revert to his job with Chicago University. 

[The reasons some people taking about turn, sometimes, reflects their utter frustration and hatred because they were either fired, made to resign, not given a plum position, or not given an extension, as happens everywhere, including America where those ‘aggrieved’ persons have turned hostile, such as National Security Advisor John Bolton and Sen. Mitt Romney etc.] 

According to Rajan, “factors such as ill-conceived demonetization and poorly executed GST” were the tipping point for the current slowdown. “Even while growth is slowing, the government is pushing its welfare program, which gives it a lot of political capital among people. There is tremendous pressure on the government for a stimulus. But you cannot keep spending, something has got to give,” Rajan said in his OP Jindal Lecture at Brown University in the US on October 9.

He blamed centralization for the Modi government’s inability to progress on the economic front. “Modi did not do better in the economy during the first term because the government is extremely centralized which puts a lot of pressure on the leadership, which does not have a consistent, articulated vision on how to achieve growth,” said Rajan.

“Ministers are disempowered. The bureaucrats are unwilling to take decisions on their own and do not have a strong idea of serious reform,” said Rajan. “The bureaucracy’s effectiveness has been diminished because in parallel India is running a campaign against corruption in the past. For a bureaucrat there is no significant upside to taking action if he can be subject to vigilant (sic) inquiry by the next administration,” he added.

“Even senior officials have been held in custody without upfront evidence. I do worry that the former finance minister has been held in jail without trial for over a month,” said Rajan.

“Because of the weakness of institutions every government runs the risk of turning authoritarian. This was true about Indira Gandhi after 1971 as it is true of the Modi government in 2019,” said Rajan. 

[He compared the two Prime Minister’s forgetting that Indira Gandhi had imposed emergency and took absolute powers but Modi has followed a strictly democratic path and his major moves have been passed and supported by the Parliament.] 

Rajan said the key test of authoritarianism was whether institutions are being weakened or strengthened and the experience in India was not encouraging. “Even the high judiciary, which was so active in the past, has been strangely silent on the constitutional issue whether changes in Kashmir are warranted and whether the continuing restrictions on a sizable number of citizens there is okay constitutionally,” the ex-RBI governor said. 

[Of course, he conveniently ignored the fact that the Kashmir move had overwhelming support of the country and also of both the Houses of Parliament.] 

Rajan, himself was a top bureaucrat and was freer than many others who head their departments but are not subjected to any improper pressure. Just because your opinion did not find favor with the government leaders you behave differently and are mad.  Rajan has nothing to say about big banks and other big business houses that were neither following rules nor conducting themselves honorably and honestly. 

As the Governor of the top bank in India with power to oversee and guide other commercial banks what did he do during his tenure? What did he do to pull the erring banks and correct the wrong practice? Public sector banks, including the biggest - State Bank of India - were indulging in fraud and scandals and what was Rajan doing? 

He sheds tears for the former Finance Minister P. Chidambaram (Congress) who is involved in some economic offenses and is behind bars. There are cases against PC and his son but Rajan doesn’t comment on the irregularities.


Highlighting that the ruling party identified majoritarian issues like triple talaq and Kashmir, Rajan said: “I don’t believe that the majoritarianism  improves national security. They weaken it, they want national integration on their terms. Majoritarian nationalism is intrinsically divisive because it labels a bunch of citizens the ‘others’ and sets impossible terms for these minorities to be considered true citizens. It ends up alienating them and, as Lincoln said, a house divided by itself cannot stand.” 

I don’t know of any government, and company, court or any other body that ignores the ‘majority’ opinion/decision and follows the ‘minority’ decision. With his view Rajan would have shut down the majority party rule in favor of minority party rule. Haha! 

Rajan was also opposed to ending the old, orthodox Muslim practice of triple talaq (divorce) that freed Muslim women from this oppressive and discriminating ‘rule.’  An Indian opposing triple Talaq can only show that he is against a common civil code and equal treatment to Muslim women and is supporting the stand of orthodox Muslim organizations.]  

Rajan warned that while majoritarianism may win elections, it is taking India down a “dark and uncertain path”. “India is better off strengthening its democracy and decentralizing,” he said.


According to Rajan, Modi was elected to power a second time because allegations on the Rafael deal and closeness to business houses did not stick and also because, at the time of the election, the dialogue was changed from performance to national security. He said the government had “superb command over social media” which helped sell the government’s performance widely. “Even today you see WhatsApp messages saying that 5% growth is wonderful without recognizing that it’s come down,” said Rajan.

Again Rajan has taken a political stand by belittling the performance of Prime Minister Modi. Commenting on the perception that Modi is respected globally, Rajan said, “People respect Indian leaders not because of the force of their personality but because they represent a 1.3-billion-strong market democracy growing fast.”

Haha, so India’s economy is indeed growing fast, here and there some ups and downs are natural but the 5% growth is much better and higher than some of the other developed countries, including the United States.

Welcome to the political arena, Mr. Rajan. Let’s see how you fare in the field if you finally decide to test your newfound political tilt (or possible connections to a certain political party.)

Meanwhile, I think it was absolutely inappropriate to paint a dark and false picture of India and its Prime Minister in a foreign country with your controversial and one-sided partial perception of the problems and development policies of your own country’s government you were an important part not long ago.

11/24/19