Wealth of the nation

Book Review: Non-fiction/Before and after the Global Crisis by T T Ram Mohan, Gyan Publishing House, p.352; Rs990 (Hardback)
T T Rammohan makes a brilliant diagnosis of what’s currently ailing the political economy of India

T T Rammohan is an academician of repute from IIM Ahmadabad. But unlike the rest of his creed, his writings are diverse and are meant for all kind of readers. Besides academic and consultancy overtures, he has been a widely-read and admired columnist with India’s leading pink paper for over two decades. With hundreds of articles on macroeconomic policies and other significant issues to his name, Rammohan is amongst the formidable scholars of his generation.

Before and after the Global Crisis is a collection of articles Rammohan had written during the 2004-12 period. Taken together, they add more value, and help tabbing the pulse of Indian economy in the post economic reforms years. This book enriches the understanding of India’s political economy and reads very well. Particularly, the chapters on how Indian economy stood in pre and post world economic crisis of 2008, are worth reading.

His earlier book Brick by Red Brick: Ravi Mathai and making of IIM Ahmadabad was a tribute to Ravi Mathai, who outgrew personal aspiration for shaping an institution and finally nation-building. The work is a biography with a difference, as it dealt with two institutions of different dimensions, IIM-A and Ravi Mathai. It got well deserved attention from readers and critics and the new book opens another round of idea exchange, focussed on the state of Indian economy.

This book is divided into five parts. The major areas covered under this are: macro economic variables, economic reforms, fiscal consolidations and disinvestment policies. The essays place rational arguments by allowing opinions to contradict the flawed current policy mechanism of the government. At some points, the author does not hesitate to approve the good works being carried out by the centre. He knows the beauty of keeping balanced views.

The next part of the book deals with banking sector reforms. The essays make the case for proper human resource development, besides favouring the prospects of inclusive banking. As the new bank licencing is imminent now, the chapter on financial inclusion has high relevance.

The third part of the book takes stock of world economy, particularly, the genesis of global economic crisis and role of international banking in the whole episode. Spread on a broader spectrum, the complex issue of ‘economic recession’ is still a puzzle. one among the formidable reasons of that has been the ‘shady regulation’ of Anglophone financial markets.

The lackluster regulatory approaches had prolonged the adventure of unsustainable financial businesses—and things hardly changed, even after the west suffered unprecedentedly through Subprime Crisis to the mass failure of banking structure.

T T Rammohan, a keen observer of global economic policies, naturally appears a very insightful narrator through his first hand experiences. As at the heart of this book is to unleash the background and foreground stories of world-wide economic crisis, the author’s specific leaning on the world economy, is justified. The world still has not come out of the grip of economic recession and although bank collapses are rare now, still the old confidence in financial markets is hard to be seen. Somewhere, it reflects the bigger mishandling of governance and regulation.

The timing of the book could not have more apt than now, when India is really passing through a tough time, by relentlessly witnessing a downward trend in its growth curve. And without growth, the principal stand of economic reforms would falter in no time. Rest, the provision of ‘redistribution of wealth’ is living uncertainty.
-Atul K Thakur
Email: summertickets@gmail.com
(Published in Millennium Post on November17,2013)

More than a rockstar performance

The new RBI Governor has loosened capital controls to attract investments from abroad. But the weather is still rough and the economy weak. Raghuram Rajan has a lot to do, and his debonair looks will not see him through...

These days everyone, including celebrity author Shobhaa De, is writing about Mr Raghuram Rajan for the country’s leading pink papers, which surprisingly cover lifestyle alongside business news. In the Reserve Bank of India’s long history, such excitement over a new Governor is unprecedented. But much of this has been manufactured by the Union Ministry of Finance which also clouded the end of Mr Rajan’s predecessor’s term.

Mr D Subbarao was given a politically-motivated farewell for his conservative handling of the central bank. He will also be remembered for his principled tussle with the Finance Ministry for quite a long time. It is a cliché that the nitty-gritties of politics overrule broad-based approaches because, for now, politics has won, and the Finance Ministry and the RBI are enjoying a rare harmony.

I have known Mr Rajan since his early days in Government, was impressed by his celebrated 2005 lecture, The Greenspan Era: Lessons for the Future, that was delivered at a symposium sponsored by the Federal Reserve Bank of Kansas City in Jackson Hole, Wyoming. I also read with great interest his radically upfront book on capitalism, Fault Lines: How Hidden Fractures Still Threaten the World Economy.

If his 2005 lecture placed him among visionaries who sensed in advance the impending trouble in the Anglophone financial model, his 2010 book added to his position as a rational thinker who had confronted the ills of the financial model, spoke against the rise of cronyism and the suspicious increase in the number of billionaires in post-reform India. Unfortunately, I fear we will miss that person now that he has taken his position at the helm of the RBI.

There is good reason why Mr Rajan’s nicely tailored suits are more talked about than his policies. Some of these, for instance, he has taken overnight to stop the downfall of the vulnerable rupee. Mr Rajan has also loosened capital controls to attract investments from abroad. But the weather is still rough and the fundamentals of the economy still weak. The pampered corporate sector is in no mood to fight its incompetencies.

In the last three decades, financial systems around the world have witnessed major change. The credit system has liberalised and the reaches of financial markets have expanded. But these changes have come with greater risks. The RBI, on many occasions, has had to step in to control visible and imminent challenges such as the earlier East Asian crisis to the worldwide recession of 2007-2008, from which we are yet to recover.

The RBI especially deserves praise for maintaining an effective regulatory grip over the new entities in the financial sector such as private equity and hedge funds. But on the other side, it remains a helpless hawk that cannot control the unethical business model of the capital market or rein in the impractical mutual fund sector which is destined for be untrustworthy. But with regard to the banking sector, the RBI has appeared to be in sync with the Finance Ministry. As a result, this sector has remained semi-reformed and non-progressive.

The last two decades have seen the emergence of diverse institutional networks in India and together they make a huge impact on policy-making. From inflation control to monetary policies, the RBI is controlling them all but individually. The clout of established third party financial assessors and lobbyists is also being strongly felt, now that India’s financial system too is seeking to become a clone of the Anglophone financial model. This is fine in the short run, but will lead to heavy losses in the medium to long term.

Mr Rajan has to take a position on this. But in the short span of time that he has been in office, he already seems to be losing his sheen. The Economist, which for some reason is religiously read in India, has compared the RBI with a pressure cooker and covertly offered sympathy for Mr Rajan. I don’t subscribe to such an extreme evaluation but have no doubt that leading the RBI during the last months of a beleaguered UPA2’s term is not a comfortable task.

At a time when the Government has made governance a redundant theme, reviving growth and containing price rise are among toughest tasks for the new RBI Governor. Also, since election is around the corner, agencies that have been sleeping all this while, such as the Planning Commission, will awake to action and offer concessions to cover up the incumbent regime’s fiscal imprudence. The RBI will come under pressure from the top and play safe, or not play at all.

Of course, India will eventually bounce back but the recovery will happen with a volatile financial sector that will remain densely populated by crony-capitalists and marred by their incompetent corporate spirit. The impressive ratings of the new RBI Governor must be taken with a pinch of salt.
Atul K Thakur
Email:summertickets@gmail.com
(Published in The Pioneer on 25September2013)

The Policy Muddles at Mint Street

The RBI (Reserve Bank of India) has been the master of all weather and seasons concerning India’s financial sector. It holds the pulse of the national economy with tempestuous effects. But even with all its prominence, the RBI has seldom crossed the contoured spirits which obfuscate the existing macroeconomic scenario. The scrimmages from its side are causing the fixture of topsy-turvy status in the policy domain, finally making the broad brush more frequent than the desirable spunky actions.

Until two years back, the world was witnessing the central bankers’ sullen acts; India was indeed a sort of exception so far. But things have entered in torsion once India’s impregnable finance ministry and the RBI got struck in the endless war stimulated by the egoists.

It’s clear that the finance ministry is the most important place in India after the Prime Minister’s Office. This sounds awkward, but becomes evident when seen against the recent reshuffling in ministries, when the serving home minister was called to hold the command of the economy.

This marks the moral bankruptcy, as the new finance minister will be hardly reckoning the plight of the economy which originated through the clash of interest between real and rave components. Moreover, he lacks the critical tributes like acceptance and expertise for handling a diverse economy like India’s.

This mischance will boost many inside the RBI, who earlier relied on static and soft monetary policies that at least in the last one and half years have cut India from both of its central economic ideologies based on “half-willing socialism” and “half-sighted dreams of reform.” Among the list of blunders, the RBI’s extraneous policy regarding the licensing of new banks under the private sector refers the unique misunderstanding of the whole issue.

It’s obvious that the RBI is not keen on banking licenses for corporates, not to work with any neo-egalitarian model of banking based on the “maximum happiness” of clients of different types and figures, but for securing the power to supersede the boards of existing banks and leaving the case of banking expansion in its backyard.

The insistence of the central bank on amendments to the Banking Regulation Act by the Parliament as a prerequisite for any potential flex on banking licensing is flawed and objectionable. It may be true that none of India’s NBFCs (Non Banking Financial Companies) are fit enough for the award of banking business, though the many interested public sector entities could be taken for a ride under the joint venture in private partnership.

Also, there would have been nothing wrong by downing the obstination on allowing the corporate world at large to enter the fray of banking based on competency, not by the channel of cronyism.

By the impression of numbers, India’s corporate sector is performing, but by the spirits, in no manner is it worth calling robust. For example, almost all heads of India’s private sector banks have downplayed the chances for a few more private banks, citing the already high competition and its aftereffects on their businesses.

These were all untoward statements with no technical precision or understanding of a height of possible stagnation with which India’s banks will be reckoning sooner rather than later. Banking should be a means for the profit, but not for the oligopoly; unfortunately, the reverse is the case in India today. Not surprising in the present scenario, if the SBI (State Bank of India) has lost its tag of being the most valued bank in market terms from one of its shrewd peers.

Notwithstanding its actual role, the RBI is maintaining silence over the future growth of India’s financial sector, which has been safe, more for its undersized ambition than the claimed prudence. This is totally ironic watching the curtain coming down on the future of India’s more than 55 percent unbanked citizens, and overall the growth of the financial sector at large.

The path India’s banking has traveled so far hardly allows one to part the views between progressivism and ultra-materialism; here the things have to be seen in the right context. Public sector banking was more a hedging intervention, so it would be unfair considering the nationalization of banks as the complete socialistic manifestation. PSBs/RRBs (Public Sector Banks/Regional Rural Banks) played their role immensely well and would do more good under the perfect competition around every nook and corner.

Not even remotely, the arrival of a few more banks would harm their business; contrarily it would help the sagging market sentiments to get an upward touch. Instead of fearing and sharing those misleading apprehensions, the RBI should create a true healthy work culture in PSBs/RRBs, which are remarkable by their business and reach. RRBs especially deserve a much better deal in terms of human resource policies. It’s shocking to see the RBI/finance ministry’s dualism in taking them as at par with the PSBs, where the service benefits like pension are now the part of system.

This discrimination should be ended by introducing the service provisions, including pensions for the RRBs employees on the line of PSBs. With more than 17,000 branches across India’s rural heartlands and small towns, RRBs can be seen as the engine of rural growth in India -- so they need an immediate broad unification at the national level with an effective professional board, which can lead the rural banking for more inclusive businesses.

India’s jobless growth or the slow industrial momentums are the outcome of chronic pessimism from the RBI for the mass issues. It’s not more than an excuse in passing the fault on global financial uncertainty by India’s policy regime for the present mess-up at the domestic front. The last two decades of India’s growth story were based on the domestic consumption strength, rather than on any other fancied factors.

This is high time for India’s central bank to move clearly and with a well- defined goal for keeping the Indian economy robust and promising. Certainly this would be a better replacement over the current placid show off, which exudes nothing except the aura of gloom. The change in attitude of the RBI will determine the course of India’s growth story and its global economic status.

Atul K Thakur
Can be emailed at: summertickets@gmail.com
(Published in India America Today on February10,2013)