'We are by no means anywhere nearing having external financing difficulties or internal financing difficulties. The government’s credit is solid, there is absolutely no difficulty for the government in borrowing and it is borrowing effectively from the public today in a fairly free public debt market,' the RBI governor tells a meeting in Washington, DC. Aziz Haniffa reports.
Reserve Bank of India Governor Raghuram Rajan, making his first appearance in Washington, DC, in his current avatar, has said his priority focus is “how to get India out of the headlines,” and declared that “we Indians treat our economy very much like we treat our cricket team.”
Speaking at the JohnsHopkinsUniversity’s School of Advanced International Studies on ‘India: Challenges and Opportunities’, Rajan noted, “India is cricket mad -- it is manic-depressive about cricket. When our team is doing well, it can do no harm.
“All our players are geniuses, gods, and we actually elevate them to that status, disregarding the weaknesses that actually exist. Of course, when we do badly, we throw rocks at their door and burn effigies of our players and we castigate them for the same weaknesses that exist when we are doing well -- we just overlook these weaknesses.”
Rajan told the standing room only audience that packed the university’s auditorium despite inclement weather, how “to some extent, we start saying how can they do any good because these weaknesses are really serious – ‘Gautam Gambhir can’t face a rising ball, a short-pitched ball, he is incompetent. Sehwag just lashes out at everything, he is incompetent and so on’.”
Thus, he argued drawing an analogy, “I’d like to say that to some extent our views of the economy have been quite similar.”
“In the go-go years of 2002-12, an average growth rate of eight percent in that decade, we ourselves and, I would argue, the world community, tended to see India as a coming superpower, strong, no weaknesses, everybody is a super-genius from the IITs and of course, the safety school for IITs is CornellUniversity. So, India must be full of super-geniuses.”
Rajan said, facetiously, the perception was that “we have 300,000 engineers produced every year who are from the IITs, so everybody in the West have to be worried about their jobs,” and recalled, “I actually had people whose kids were going to Stanford, Harvard, saying, I’m really not sure where my kids will work when they graduate, given the onslaught (from IIT graduates in the US taking their jobs).
“So, that was then. Of course, we had serious deficiencies during that period also, such as poor infrastructure -- of course, that infrastructure has improved, but we had poor infrastructure relative to some other economies.”
“Our human capital,” he said, was also “much to be desired”.
Rajan reiterated that “during the go-go years, India could do no wrong at that point. Today, India can do no right, and of course, people are right to focus on the problems that India has recently -- annual GDP growth has slowed from 10 plus percent in 2010-2011 to 4.50 percent…This is somewhere near the low we will approach. We should be better from now on.”
Rajan predicted with supreme confidence that “India will be back to greater growth,” and asserted that “these deeper problems -- poor infrastructure, human capital, and over-regulation are problems that need to be fixed over the medium-term, they are important for sustainable growth. If we fix them, we can go to double-digit growth.”
He asserted that “there are processes underway to fix them. I don’t want to say that success is assured, but I want to say that success is certainly assured for us getting out of where we are right now.”
Rajan pilloried people who were “talking in terms of the Latin American crises that happened in the 1990s,” and declared, “My sense is that anybody who says that doesn’t know diddly squat about India.”
He acknowledged, “India is a messy democracy, things don’t happen in a straight line, but it is vibrant. It has its own checks and balances, it responds to the increasing scarcity and price of natural resources. There was first a weakening of the allocation of these resources, but also a push-back from civil society, from the judiciary, from the press, and the final outcome will be yes, growth is suppressed for a little while, but we’ll get the institutions in place that will allocate these things in a much more transparent and more effective way and that will be good in the longer run.”
Rajan made clear that “we are by no means -- no means -- anywhere nearing having external financing difficulties or internal financing difficulties. The government’s credit is good, solid, there is absolutely no difficulty for the government in borrowing and it is borrowing effectively from the public today in a fairly free public debt market…The public essentially seems to be happy holding the debt.”
He reiterated that “India, as (Amartya) Sen has said, is an open and an argumentative society …But we are also liable for mood swings perhaps more so than other societies -- I think Italy comes close,” he said to peals of laughter. “Perhaps these mood swings are driven by our competitive and very young press.”
Rajan said, “The point here is that we are very excitable, very volatile, we see conspiracies where there should be no conspiracy to be seen. But if you strip off the euphoria and despair about what is said about India, and from what we Indians see about ourselves, you will probably get closer to the truth.”
“The truth is there is a tremendous amount of low-hanging fruit in India. The fact that we are relatively poor is that we haven’t plucked them but we can still pluck them.”
Rajan acknowledged, “You can’t take them for granted but we have the will to do that, we have a lot of young people…their energy, their hopes, their ambitions, just keeps me energised.”
“These are the guys who are willing to dare the world, they are great and they will be unwilling to take the status-quo for granted.”
Image: Dr Raghuram Rajan ' Photograph: Mike Theiler/Reuters