India Ejects A Change Maker

Bruce Munro, the disgraced former boss of Thiess, famously defended bribe-giving allegations against him by saying, ‘the culture and business in India is different, everybody in India lies to everybody (sic)’. While Indians in Australia like me were dutifully offended by that sweeping generalisation, I have to admit that he is partly right. India is a notoriously difficult country to navigate for business. Corruption is a way of life for bureaucrats and deception is a management philosophy. Such a system, just like the mafia, demands unquestioning obedience. After Raghuram Rajan, the straight shooting ‘rockstar’ chief of the Reserve Bank of India (RBI), announced last week that he won’t be seeking a second term, Munro’s words rang in my ears. Rajan fell victim to the same system that Munro was talking about.A former Chief Economist at IMF and famous for having predicted the meltdown in the US mortgage markets before the global financial crisis, Rajan has credentials that few central bankers in the developing world can boast of.

When he came to the job in 2013 with a reformer’s mindset, the suave and articulate Rajan became a darling of the press. Soon, a man with the boring job of a central banker had fan pages on Facebook. Within hours of taking over his job, he called a press conference to outline his actions to stabilise the fast depreciating Indian currency that everyone was worrying about. When he matched his celebrity with actions, he was seen as the new sheriff in town who meant business. In under three years since, he brought rapid change to the functioning of the central bank, reined in in the inflation and began the unenviable task of cleaning up public sector banks that concealed bad loans.

He also did something that Indian bureaucrats never do – he spoke his mind. After NaMo, as PM Narendra Modi is known, came to power in 2014 promising economic renaissance, Rajan was under constant pressure to deliver policies that complemented the Government’s ambitions. In a country of yes-men regulators who readily acquiesce, Rajan was an aberration. He declared that his first priority was to control the runaway inflation and not helping banks grow their loan portfolios. Economists cheered Rajan’s defiance while the common man saw merit in his arguments. The sheriff was also outspoken, condemning the growing intolerance in the country and cautioning against the Government’s exaggerated narrative on the economy. With corruption resurfacing and deception becoming an official policy, even the supporters of the ruling party saw Rajan as a voice of reason.

All that changed in May when Subramanian Swamy, an MP and senior leader of the ruling party, wrote two scathing letters to the Prime Minister that would have put Joe McCarthy to shame. Swamy, himself a Harvard educated economist, is notorious in Indian politics for his Nixonian dirty tricks. He accused Rajan of making a ‘wilful and deliberate attempt to wreck the economy’ and rehashed his favourite ‘CIA agent’ smear when he alleged Rajan was ‘mentally not fully Indian’. Taken aback, Rajan called himself a karma yogi - a man who believes in doing his duty despite obstacles.  In spite of the Government’s muted reaction to the episode, media speculated that the whole episode was Swamy’s lone battle. Few foresaw what came next.

When Rajan announced that after ‘consulting with the Government’, he decided to not seek a second term, it became apparent that Swamy managed to shoot the sheriff. While the nation reeled from the announcement, one thing became apparent - it wasn’t Swamy’s war alone. In a revealing tweet within hours of Rajan’s announcement, Swamy congratulated NaMo for not bending to the pressures from foreign forces and for pushing out Rajan.

Rajan’s exit was neither voluntary nor due to his ‘monetary policy’ positions. His independence and belief in freedom of expression proved his undoing in a notorious system that NaMo seems to have only embraced despite his election promises. In the echo chambers of ruling party’s supporters, this was seen as a victory of nationalism and rejection of foreign values such as freedom of expression. It is clear the mud-slinging was orchestrated by the Government to dim Rajan’s star and assassinate his character before the ouster. In a pyrrhic victory, Rajan did not let the Government control the narrative and announced his departure in a public letter to RBI employees replete with hints about what had transpired. 

While it may not have a huge impact on the economy in the long run, this episode only serves to remind the world that the oppressive system is still alive in India. Loss of credibility and reputation due to the way this was handled will hurt the country more than the benefits of rate cuts, which the ruling party accuses Rajan of withholding. It is difficult to imagine a political drama like this unfolding in the corridors of central banks in any major economy. Like Munro said, the culture and business in India are indeed different. Though it is preposterous to say that everybody lies to everybody, it appears that if you don’t lie with the Government, you don’t get a salary anymore. Rajan, having spent decades outside the country, seems to have missed the memo.