Investment in India slowing: Raghuram Rajan

By Amit Roy

THE former governor of the Reserve Bank of India has urged prime minister Narendra Modi’s government not to seek an “authoritarian” route to solving the country’s economic problems.

Addressing a packed gathering of the National Indian Students and Alumni Union UK (NISAU) in London last Wednesday (23) Raghuram Rajan said: “Let’s strengthen our democracy- that is something Gandhi would very much believe in.”

Rajan’s comments came as the students’ organisation marked the 150th birth anniversary of Indian freedom icon, Mahatma Gandhi.

Appointed as the governor of the Reserve Bank of India in 2013 for a four-year period, Rajan did not seek a second term nor was the Modi government keen to extend his time in office.

At the end of his time in India, Rajan returned to his earlier job as an academic; the 56-year old is the Katherine Dusak Miller Distinguished Service Professor of Finance at the University of Chicago Booth School of Business.

Rajan told the London gathering: “I worry a little about where we are going. On the economic front India has certainly slowed considerably in the last few quarters. But I fear that it is more than cyclical development.

“In India investment has been slowing for some time and most recently consumption has joined in. This has created serious problems in jobs growth – we are seeing joblessness as a fact of life in many parts of India. We are not doing enough for growth, we are not doing enough to make it inclusive.”

“We also have not dealt with the problems of poverty. For example, we still have malnutrition today, which is a crime on our children. And malnutrition condemns these children to a stunted existence.

He added: “As a democracy we (referring to India) have a huge potential to convey a message to the world that it is not necessary to develop in the traditional way which is authoritarian development – that there is an alternative in which people are free to express themselves, people are free to debate, people are free to talk – and you can still get growth and development. This is the message we could send to the rest of the world.”

Rajan referred to Lee Kuan Yew, for three decades Singapore’s prime minister, who “thought that democracy held India back. The reality is that even with our democracy we have grown at seven per cent - give or take a little bit because of statistics - but seven per cent for the last 25 years. Now, that’s an achievement – no matter what kind of country you are. But we have done it being democratic. We have also done it over the last few decades.

“Next year we will probably overtake the United States as the second most source of world growth, next to only China, because we have also grown into a big economy.”

Without targeting Modi by name, Rajan said: “This government is much more centralised than the previous two governments – a lot of decisions are made in the prime minister’s office and not outside with the ministers.”

Rajan recalled how previously India had witnessed a “constant process of decentralisation: more powers going from the centre to the states and more from the states to the panchayats and the municipalities. Not enough, but we have done that over time.”

However, he noted that the current government “is also trying to reverse the decentralisation that was happening under Finance Commission grants, through the constitution itself and taking back power to the centre.”

Rajan posed the question: “Is this the right approach for India?” And answered it himself: “My argument would be certainly from the economic side – it doesn’t work that way. Politically it may work in furthering the aims of the government but economically it hasn’t worked well so far. To some extent decision-making has become paralysed despite the political power of this government.”

In his speech in the auditorium at the old BBC Bush House, now part of King’s College London, Rajan said there were also “issues of majoritarianism coming up under this government.

“Majoritarianism is antithetical to everything that Gandhi stood for. Is that the way we should be going – ‘my way or the highway’ to all the minorities?

“Is Lee Kuan Yew right? Would India be better off with a more authoritarian structure? A structure that makes the trains run on time, a structure that spreads fear through the country, a structure that works through a very strong bureaucracy and strong investigative agencies?

“There are no rich countries that are not democratic, except perhaps for the oil kingdoms. Given where India is, it is a pipe dream to think we can go back on our democracy. We can certainly have more vibrant universities, a more vibrant cultural environment.

“For that I would argue that authoritarianism is the worst possible direction – we need to encourage the kinds of debates we have always had.”

Paying tribute to the Indian freedom icon, Rajan said: “I have been inspired by Gandhi – the message of Gandhi goes far beyond what people take away and it is a message which is still very vibrant and very important for today, especially in his emphasis that the answers come through dialogue, through respect and tolerance for one another and that India is too diverse a nation to have one theme, one idea.

“The vision of Gandhi and Nehru was essentially a vibrant, varied India and an India with many colours held together by mutual tolerance and respect.”

He added: “Sometimes, people say India’s weakness is its democracy, its vibrant debate.”

Rajan offered this advice to the Indian government: “Suppressing criticism means you don’t hear the feedback. If you don’t hear the feedback you can’t course correct at an appropriate point in time. Calling all the critics and saying, ‘Don’t criticise the government,’ is bad for the government itself.

“It may feel good for everyone to praise you and say that you are the second coming of Christ, but that’s not going to generate the kind of awareness you need within government itself. I would hope that the government listens and sees what it needs to do – and there are plenty of economists and plenty of wise people in India who can give advice. But it is important that the government takes that advice and deliberates and maybe acts on it.”

In the audience was the founder of Cobra beer and chancellor of Birmingham University, Lord Karan Bilimoria, who recalled a quip by the Queen during a visit across the road to the London School of Economics.

She had wanted to know why no one had seen the crash of 2008 coming.

Bilimoria told the students to much applause: “One person did spot the crash coming – and that was Dr Rajan.”

Sanam Arora, the chairperson of NISAU, described Rajan as “the most popular central banker not just in India, but all over the world”. At one stage, the Financial Times tipped Rajan as a possible successor to Mark Carney as the governor of the Bank of England.