Did Dr Rajan play his cards wrong

Fighting battles through the media often backfires. More so when the new media is dominated by saffron warriors and is the chosen arena of subterfuge. In RBI governor Raghuram Rajan’s case, it was a scrum that left him bruised. There are two aspects to the Rajan case, a vicious and brutal personal attack by a drumbeater rattled the governor’s cage. His counterattack, through favourably-disposed media, created the spectre of a massive flight of capital and a run on the rupee. In this game of hunter and quarry, the hunter prevailed as Dr Rajan, who I personally thought didn’t deserve the drumbeater’s fulminations, simply played his cards all wrong. Nobody is bigger than India, as we have seen over successive elections. As the unwritten rubric of conduct on Mint Street’s sheriff was torn and shattered with the incessant drumbeating, traditional media turned into idols of the cave whose cognitive biases reflecting distortions and prejudices were left bedraggled. On Monday, nothing cataclysmic happened. One can argue that the Centre must have asked domestic financial institutions and fund managers to shore up the market from the time it opened to bridge the deficit gap being systematically created. The reality though is that it was an anti-climactic event, which proves once again that individuals don’t matter. It wasn’t just the institution that prevailed, but since it had become a matter of grave national import, the country was bigger than everything else.

Dr Rajan had to choose, like most Indian central bankers, to balance growth imperatives with inflation targeting. As monetary tools are the only interventionist mechanism available to India’s central bank, given that supply side distortions have been a shipwreck. High interest rates are something India Inc and possibly the government was displeased with, despite a largely benevolent crude and commodity downcycle in operation for almost two years. But the RBI is always wary of inflation spikes and thus easing of interest rates is something it doesn’t take to very kindly. I guess even that didn’t matter much, it was the ugly bulge in the carpet which Dr Rajan was clear about clearing in his corner room. This ugly and abominable bulge comprising elephants and camels, long hidden in the RBI governor’s room, was what proved to be the kicker. Called non-performing and stressed assets, the magnitude of which wasn’t known till he arrived on the scene and decided to dismantle, the well-oiled construct of crony socialism proved to be his bugbear. India Inc has enjoyed an extremely cordial relationship with public and private sector banks, with the government and finance ministry mandarins proving to be the third leg in this three-legged stool. Favours were dispensed in the past and the whole flawed architecture of crony capitalism, sorry socialism in India, is where Dr Rajan bunged in a monkey wrench. Almost overnight one could see the true enormity of the malaise, as bank after bank declared humungous losses and the non-performing asset balloon was finally pricked.

This is what did Dr Rajan in as powerful businessmen and industrialists, upset with him anyway for not cutting rates aggressively, found their easy credit lines suddenly dried up. The RBI’s Strategic Debt Restructuring and 5/25 schemes jumpstarted by Dr Rajan were not accepted or absorbed easily for obvious reasons. A hyper-ventilating zealot was then thrown into the equation. Subramanian Swamy is a powerful advocator and dangerous adversary at the best of times, he’s also a hunter and this time he had a pack backing him. As all warfare is based on deception, this game of moral hazard saw Dr Rajan making the grave error of going to the media.

It’s the only part of Dr Rajan’s strategic paradigm that I didn’t concur with. In the game where illusion becomes reality, the social media is where he was bested and consumed. Such was the ferocity and velocity of the upsurge against him that he didn’t really have a chance.

Stating the fact that billions of dollars might fly out of the country if Dr Rajan was scuppered was overplayed, and proved to be the most damaging tactic. You don’t go head to head with a brawler with brass knuckles with just bare hands. Dr Rajan was always dignified and upright, and while all this talk of his being an American agent was pure rubbish, taking the fight to the media altered the calculus unequivocally. The India of 2016 is considerably different from what it was even three years ago, and social media is a frightening new interloper in a world where there don’t seem to be any moral absolutes. Martyrdom doesn’t work.

More so when I stumbled upon some curious instances where the kettle is very black itself. Daman Singh, writing in “Strictly Personal” about her father Manmohan Singh, an earlier RBI governor, quotes the former PM as saying: “But I did try to protect the autonomy of the RBI. When the Cabinet decided the power of the RBI to issue licences to branches of foreign banks should be taken away, I sent my letter of resignation to Pranab Mukherjee and to the PM. Later, I managed to persuade Mrs Gandhi that the Cabinet decision was not proper. And they never implemented that decision. Ultimately they dropped the idea.”

Corroborating this, Mr Mukherjee (then finance minister, now President of India), writes in his book The Turbulent Years that it was then PM Rajiv Gandhi’s decision to fire RBI governor Dr Singh: “Let me add that contrary to the conjecture in some quarters, I had absolutely no role in Dr Singh’s departure from the RBI. By December 1985, PM Rajiv Gandhi was firmly in the saddle and I was out of the Cabinet and the party. It was P.C. Alexander, principal secretary to the PM, who informed Dr Singh to move to the Planning Commission. Ergo, Dr Singh, RBI governor, was sacked by Rajiv Gandhi and moved to Yojana Bhavan.” Dr Singh himself confirms this to his daughter Daman when he answers her question: “Your tenure in RBI turned out to be rather brief — two and a half years, wouldn’t you have liked to stay on ” The answer is quick, and comes pat from Dr Singh: “Well, I would have liked to, but when you are told to leave... I guess you leave.”

This confirms that the Congress, which is trying to make a martyr out of Dr Rajan, had trampled on poor Dr Singh’s wish to continue in the Reserve Bank rather brusquely. I would reiterate while I don’t agree with the way Dr Rajan was stampeded out, equally his choice of fighting this battle in the high-pitched world of the modern media backfired on him. In the end, he was suckered in like a moth to a flame, the instrumentality being the drumbeater. Which proves once again that effect is never a straight line.

The writer is a former editor, author and visiting fellow at Observer Research Foundation. He loves the space where politics and economics converge.