Raghuram Rajan: I take the decision without looking to who’s happy and who’s not

When Raghuram Govind Rajan came to India as the government’s chief economic adviser two years ago, everyone warned him about the bureaucracy. ‘People told me the bureaucracy here will be very difficult to deal with—very smart people, but with very different agendas.’

Rajan, fifty-one, hasn’t found much truth in that. ‘If you have paid attention elsewhere and if you are not completely naive, there isn’t a whole lot that is surprising or different. It is slightly different here inasmuch as there isn’t often a sense of urgency. Things that need to be done yesterday are still not done, in some cases. But that’s not surprising.’…

Extended Honeymoon

We’re having lunch in the RBI visitors’ room, adjacent to Rajan’s eighteenth-floor corner office in Mumbai’s Fort area. The menu features everything you could possibly think of, from green pea soup and stuffed pomfret to prawn balchao and badami murg—all from the RBI kitchen run by chef Brian Pais.

Rajan walks in a few minutes past 1 p.m. A warm handshake later, I ask him bluntly whether he offered to resign when the Bharatiya Janata Party–led National Democratic Alliance government took over in May. After all, he was appointed by the Congress-led United Progressive Alliance government. Rajan doesn’t seem annoyed, but prefers not to answer this question, even off the record. ‘Of course, if I lost the confidence of the government at any point, I would go the next day,’ he says curtly.

Was the governorship part of the arrangement when he took over as chief economic adviser? I ask him even before we sit down to lunch.

‘There was no arrangement,’ says Rajan.

We plough through all the food, with the portraits of sixteen of the RBI’s twenty-two past governors (Subbarao is still not there though it has been a year since he stepped down) looking down at us.

Rajan had two conditions when I invited him for lunch: One, let’s meet at the RBI and two, no personal questions. He is a vegetarian, although he doesn’t mind eating eggs. So, the onus of eating all that meat and seafood is on me, but I find him keeping a close eye on my plate. ‘Are there too many bones? Would you care for a fresh plate?’ he asks me while eating a chapatti with paneer birbali.

In August last year, the UPA government announced the name of the next RBI governor a month before the position fell vacant, and Rajan, then chief economic adviser, was sent to the RBI as an officer on special duty—something that had never happened in the RBI’s seventy-nine-year history.

It was a tough gig. Inflation had been high for years, but what added to the problem was a record high current account deficit, a falling local currency against the greenback and the real threat of a ratings downgrade.

One year on, the rupee has stabilized, the current account deficit is manageable. Rajan is not shy of raising policy rates to fight inflation and, most importantly, the government is backing him to the hilt in his fight against inflation. He is under no pressure to cut interest rates to boost growth in Asia’s third-largest economy.

Unbelievably, Rajan’s honeymoon with the industry and people in general continues. What’s the secret? ‘Look at the Indian cricket team. They are gods, they can’t do any wrong, and then they come down to earth after they lose a few matches. I am waiting for something to happen to bring me down there, even though I can’t say I am looking forward to that. I see my job as a kind of a mission. I have to keep doing what I do. And take the decision without looking to who’s happy and who’s not,’ he says.

Born in Bhopal in 1963, the third child of a police officer, Rajan’s rise in the world of economics has been meteoric. A gold medallist at both the Indian Institute of Technology Delhi and the Indian Institute of Management Ahmedabad, he did a short stint at Tata Administrative Services as a management trainee before getting a doctorate in management from the Massachusetts Institute of Technology’s Sloan School of Management in the US.

In 1991, he joined the University of Chicago Booth School of Business as an assistant professor of finance and worked there till August 2003, when he was appointed chief economist at the International Monetary Fund (IMF).

In 2005, at Jackson Hole, Wyoming, at the annual central bankers’ conference, Rajan tore apart US Federal Reserve board chairman Alan Greenspan’s work and reputation. A 2009 Wall Street Journal report on his presentation says Rajan even argued that the banking system itself would be at risk and banks would lose confidence in one another. ‘The inter-bank market could freeze up, and one could well have a full-blown financial crisis.’ Two years later, that’s exactly what happened.

Rajan still believes that financial reforms take ‘a hundred small steps’, the title of a 2008 paper by a committee that he headed, where he spoke about inflation targeting and a floating exchange rate, among other things. ‘Whatever you put in place, the success of that you will see in years down the line, especially in the financial sector, where things have to catch on . . . There is a sense in India that we are uniquely different from the rest of the world. In some ways we are, but in many ways some of the issues we find here are similar to the issues you find anywhere else.’…

Of course, it’s not easy to work fast in an organization like the RBI. The central bank has been known to sit on things, but rarely says no. ‘This is an organization with tremendous capabilities, but it is also a bureaucracy, in the non-pejorative sense of the word. Sometimes the bureaucracy delays things in order to essentially say no without saying so. Especially in a country where sometimes saying no is seen as a slap in the face, it’s better that the issue slowly dissipates over time rather than having to take a decision. Some policies that seem inordinately delayed should be seen in that light—perhaps there’s a fundamental disagreement over the policy, and therefore the best way to kill it without prompting a confrontation . . .’ he says.

Restructuring the RBI

Meanwhile, work is on to modernize the behemoth. After all, it was set up in the 1930s, at a time when the world was reeling under the Great Depression, and since then its objectives have remained unchanged. ‘We are undertaking some internal reorganization of RBI’s structure and how it functions. There will be concerns, like any other reorganization, and we have to take the staff along with us. But the whole idea is to make it an organization which is fully capable of meeting the challenges of the twenty-first century. We need to figure out how to move towards specialization. Training and support is a second issue. We need good performance evaluation and once we evaluate weaknesses, we need to offer support in terms of skill building,’ says Rajan.

The RBI board has already approved Rajan’s ambitious plan. He refutes the idea that he plans to import talent from outside. ‘In an organization that has grown as it has, it’s better to grow the internal talent than bring too many people from outside as they will be seen as competing for the existing jobs. You can bring people in if you are expanding, but you have to be very careful in doing it and do it in small doses only.’

Rajan declines the fresh fruits and ice cream, and opts for coffee instead. It seems like the right time to ask him about commentators who have described him as India’s newest sex symbol (in Shobhaa De’s words, ‘the guy’s put “sex” back into the limp Sensex’). Many of my female colleagues at Mint swoon over him and even those who don’t know the way to the RBI headquarters on Mint Road are keen to attend his press conferences.

Rajan, 6ft 1 inch, blushes, but soon recovers to say: ‘My wife, Radhika, teases me a lot about this. I worry that there is a real danger that you distract from the very important and sober task of policymaking. But that said, the value of having glamour introduced into some professions is that it attracts young people into that profession. If a boring economist can become glamorous, maybe economics is something worth pursuing…

It’s well past 2.15 p.m. and I see him looking furtively at his watch…

The liveried RBI waiter appears with a tray of paan, formally signalling the end of our meeting. I pick up two and without losing a moment, shoot my last question to Rajan: he has achieved so much in such a short time. Even if he remains RBI governor for five years, he will be only fifty-five. What will he do after that?

‘I like writing and thinking. What next is back to the future, go back to writing and thinking, with the idea that I have learnt a lot about India and will write more about it—what I think is going right and wrong. Not a “tell-all” book, but a thought-piece like my other books. But I have no fears about a life of quiet contemplation. Actually, that’s my other side. I think my wife is perfectly happy staying quiet and going underground. And we have no desire to be in the limelight.’

He may not like this, but I am sure the limelight will always chase him.

Postscript

Unlike his predecessor D. Subbarao, Rajan did not get a second term. He has gone back to the academic world in the US ‘as he lost the confidence of the government’, but is ‘willing to return to India if the nation wants’ him.

Extracts taken with permission from Penguin Random House; Pages 384 ; Rs 599