Bloomberg on Modi and 2019

Now, Modi’s India looks a lot like any other emerging economy, with a tame central bank and a profligate government that wants to ignore the laws of economics.

Many of us have long argued that, whatever its problems, India is one of the best long-term bets in the world for one simple reason: It has the sort of world-class institutions that can help build and sustain a genuine market economy. Sadly, many of those same institutions are being undermined by the country’s own leaders — most recently the Reserve Bank of India, which Prime Minister Narendra Modi appear intent on subjugating as part of his bid for reelection. Of all people, Modi should recognize that no election victory is worth giving up on India’s best chance at becoming a world-beating economy.

For Indians who share that ambition, it’s been a sobering week. Late on Monday night, news broke that central bank governor Urjit Patel had quit. The news was particularly shocking because it followed a lengthy campaign by the government to bend India’s independent central bank to its will. The Finance Ministry had demanded a series of concessions from the governor – that the RBI stop forcing state-controlled banks to crack down on some big delinquent borrowers, for example. It believed that the central bank was also being too sparing with liquidity: Recent GDP numbers suggest a slowdown in demand, partly caused by a seize-up in India’s shadow banking sector. These “non-banking financial companies,” to use the official Indian term, are crucial lenders to infrastructure and to the small- and medium-sized enterprises Modi hopes will create jobs for his voters.

And, most controversially, the cash-strapped government — facing a tighter-than-expected reelection campaign — wanted to get its hands on the billions of dollars of reserves that the RBI is holding. Modi’s recently-departed chief economic adviser has said this would amount to “raiding” the RBI, and one of Patel’s deputies gave a public speech warning the government against it. But officials don’t seem to have been deterred. Patel appears to have been losing this battle and presumably quit rather than preside over the disappearance of RBI independence.

A leader who wished to preserve the integrity of the central bank would have appointed an independent-minded replacement for Patel, even if one whose views were closer to the government’s. But Modi’s choice was instead an ex-bureaucrat named Shaktikanta Das. Das served as India’s chief economic official right through the currency withdrawal and the botched roll-out of a new indirect tax regime and was a consistent advocate for the government’s claim that Patel and company were keeping interest rates too high.

Das doesn’t have the distinguished academic history of Rajan or even of Patel, who earned a doctorate from Yale and is a distinguished fellow at Brookings. True, bureaucrats have served as RBI governor before and many have grown into the role. In this case, however, there seems little doubt that the quality that Das has been chosen for is his ability to follow orders.

Modi’s choice is doubly damaging because he looks even more desperate for a compliant RBI today than he was last week, following deep losses in state elections. Many in Modi’s Bharatiya Janata Party believe that they are losing farmers and unemployed young people, crucial parts of the coalition that carried Modi to victory in 2014. Modi’s strategists will want to turn on the populist spending tap in response. With Patel watchfully guarding monetary policy and the RBI’s reserves, it would have been tough to find the resources for an election-winning spending push.

Das has vowed to “uphold the autonomy, the integrity and credibility” of the central bank. But, at least for the months leading up to parliamentary elections early next year, the government will expect that he’ll take dictation from New Delhi. Doing so would cause lasting harm to India and greatly reduce its potential future prosperity.

It’s the sort of institutional regression that we haven’t seen for decades. No RBI governor has had to quit in the two-and-a-half decades since India began to liberalize its economy; the history of India’s central bank has been one of ever-increasing autonomy. This is particularly important given that India’s a noisy democracy, with a half-dozen elections a year and politicians who want to win each of them. The RBI’s long-term view and evidence-based policymaking provided a crucial counterweight.

That was the sort of governance that many hoped Modi himself would provide when he won a landslide in 2014. Such political capital, they argued, would allow him to keep his eye on what really mattered instead of worrying about day-to-day survival in power. And perhaps that was true at first: The Modi government itself seemed to cap the RBI’s progression to true independence early in its term when it legislated an official inflation target for the bank, freeing it further from New Delhi’s control. In partnership with someone like Rajan, Modi could have provided the kind of sober and effective economic management that would have shifted India permanently to a high-growth trajectory.

Now, Modi’s India looks like a lot more like any other emerging economy, with a tame central bank and a profligate government that wants to ignore the laws of economics. Modi won once by promising world-class governance. Why does he think voters will reelect him for anything less? more  

View all 86 comments Below 86 comments
This Govt is damaging all professional institutions as the leaders are not professional and no clue about what is professionalism. They are just interested in petty electoral ploys. It is time to bring laws to strengthen these institutions from politicians and also set qualifications for law makers themselves more  
Govt. has to serve the country and is comitted to ithe well being of its citizens where as the accountability of RBI towards the masses is limitted. More over if the Govt. wants to use extra money lying with the RBI, what is a big about it. After all money so received would not go to any one's pocket but would be used for development to create new jobs. more  
True. The declined Economic status of general public and deteriorated Indian Economy as at '14 need such in addition to Loans and Grants from World Institutions and Countries . None to sleep when lakhs of Crores Public Savings and National Funds are set for rounding off Bad Debts of Millionaires and Billionaires. more  
True. Nations are not made by individuals but institutions. But alas some of the hero worshiping Indians trust individuals more thqn the systems and institutes.
But discussing politics here may not be right. more  
For centuries, many countries have been giving money to religious places to the extent that almost all of them including the ones in India have become unreasonably rich. All at the tax payer’s expense.
The RBI has become cash rich because of Government policies.
In both these institutions, there should be some way the Government can benefit somehow. more  
Post a Comment

Related Posts

    • Committes attached to govt.

      These celluloids should not get these posts. it is not clear whether the posts carry some sort of remuneration. These committees have definite role and why not advertise for memberships in committ...

      By Subramanian Venkataraman
      /
    • Pathetic MPs and bureaucrats

      25 out of 29 MPs skip key pollution meet called by Parliament's Standing Committee on Urban Development meeting. 5 Top Bureaucrats from Environment Ministry & the Municipal Corporations also bu...

      By Vinita Agrawal
      /
    • Online frauds using Facebook, Whatsapp, Instagram and other platforms: Inputs Sought

      Some of you in the online communities for Ministry of Consumer Affairs, Department of Legal Metrology and other circles have been highlighting how buying and selling is taking place via Facebook, I...

      By LocalCircles Manager
      /
    • Solutions to stop stubble burning and the deadly air in Delhi NCR and North India

      Delhi NCR and many parts of Northern India have continued to breathe the deadly air with little respite. On a few days the AQI levels even touched the very dangerous 1000+ markPoint solut...

      By LocalCircles Manager
      /
    • Improving Governance of PSUs - Addl Inputs

      Members of various circles continue to report instances of corruption at Public Sector Organisations. Below are your key inputs to improve the functioning of PSUs in India. Kindly review and if you...

      By LocalCircles Manager
      /
    • Investigation Process for Company Frauds with PSU Banks: Inputs Sought

      In multiple circles, we have received posts from members which suggest that the CBI is taking a long time in acting on complaints of frauds in excess of 100 crores filed by public sector banks. Per...

      By LocalCircles Manager
      /
    • Ayodhya Verdict

      Great work by Chief Justice Ranjan Gogoi! A five-judge bench of the Supreme Court formed to resolve the Ayodhya dispute paved the way to build a temple through central government-monito...

      By Amit Mishra
      /
    • Ayodhya Verdict Tomorrow

      See attached everyone. Hope we all maintain peace and harmony.

      By Anushka Singh
      /
    • 3 years of Demonetisation: Findings and Inputs Sought

      Many of you participated in the LocalCircles survey on 3 years of demonetisation. Below, please find the link to the survey report. While increase in digital transactions are expansion of tax net a...

      By LocalCircles Manager
      /
    • Is the black money back in the economy? Inputs Sought

      Many of you may remember that this circle was the first collective community to call for demonetisation Oct 31 - Nov 8, 2016 before it was announced by the Prime Minister on Nov 8.Per the...

      By LocalCircles Manager
      /
    • ARE SOME LAWYERS HALF CRIMINALS ?

      In pre independent days, India has seen great scholarly lawyers like Mahatma Gandhi, Jawaharlal Nehru, Sardar Patel, Rajaji and others. Seeing the behavior of the present day lawyers, those belongi...

      By N.S. Venkataraman
      /
Share To
Enter your email & mobile number and we will send you the instructions

Note - The email can sometime gets delivered to the spam folder, so the instruction will be send to your mobile as well

Please select a Circle that you want people to invite to.
Invite to
(Maximum 500 email ids allowed.)