Raghuram Rajan's take on the role of RBI Governor is a message for Urjit Patel, Govt

Former RBI governor Raghuram Rajan on Wednesday launched his book - I Do What I Do - which is based on his days in the national capital as the Central Bank chief. The book comes a year after he demitted the RBI office that went on to recommend, what could be termed the biggest economic gamble, demonetisation on November 8, 2016.

During the launch of the book, Raghuram Rajan touched upon various financial issues confronting India. He talked about RBI governor's role in taking financial decisions, bad debts, RBI's independence and his tenure at the Central bank. Rajan began his address by talking about the 'tremendous power' he had at RBI and 'why he did what he did' while heading the institution. He also explained the rationales behind some of the initiatives that were taken under his watch.

"We initiated a lot of reforms, and I wanted to explain the rational for some of those reforms so that they keep going because, I think, they are very important to create a platform for India's continuing growth into the future," Rajan said. He also explained why he was silenced for almost a year. Rajan said: "I decided that it was quite important to leave the public space for my successor and let him establish a sense of what the RBI is going to be under his regime."

Speaking on the book, the Former RBI chief said that this was not the tell-all except for one statement in the introduction on the demonetisation. "There is nothing (in the book) on private communication with the government," Rajan said. However, he has talked about demonetisation in the introduction of the book. "The reason I mentioned it because there were questions asked by Parliamentary Standing Committee to which responses were given and some of the garbled responses that came out did not seem to accord with my recollection of what exactly happened. So, I wanted to set the record straight just because the Parliament has the right to know what in fact the response of the RBI was," Rajan said.

Here are the key takeaways from his latest speech:  

RBI head is not any other bureaucrat but a risk manager of the country: Former RBI Governor spoke at length on the role of the Central bank's chief. He said: "As the Governor of RBI you are the most important technocrat dealing with economic risk management. No other technocrat has the kind of tools that you have at your command." "You (RBI Governor) control  Rs 300-400 billion forex reserves. You determine the interest rate policy in the economy. You are also the lender of last resort, in fact you have the power to lend pretty much anything if the situation warrants it. Given all this you are, effectively, the risk manager of the economy. You have to warn about the risk to macro-stability and risk to the growth agenda," Rajan said. 

He was apparently hinting at the pressure that sometimes comes from the government. Rajan said that as RBI chief you sometimes have to speak out and say no to pressure that come down on you. "You are not quite in the place of a bureaucrat because most bureaucrats do not have the freedom to say no but you as the RBI Governor have to make judgement as to what is appropriate or not for the longer run benefit of the economy. Just because the government wants something doesn't mean that you always say yes, you sometimes have to say no," Rajan said.    
 
RBI's key job is to stabilize the rupee and hold it: Raghuram Rajan said that stabilizing the value of rupee and holding it are really the most important job of the RBI. He also said that he was always in favour of forming monetary policy committee, which was established after Rajan had left the RBI. He further explained as to why he was in favour of the creating MPC, he said:  "I felt that committee would bring many minds together and results in better decisions rather than individual making that decisions. A committee could provide continuity. If a person left, you still know what the committee broadly thought and it wouldn't create uncertainty about the inflation management that would happen if you had one person and lastly a committee is much harder to pressure than a single person or governor," Rajan said.

Don't boast about the economic growth: under-promise over-achieve: Raghuram Rajan said that there is no return from boasting and it is better to be moderate and to under-promise and over achieve. He was referring to some of the earlier claims where the government said that India was the fastest growing economy in the world. "In that way we keep the world and international investors appreciative of what we are doing," Rajan said. He further said that India has the potential to do significant things over the period and let's be confident that we can do it and boast about it after we have achieved it.

Don't merge the banks if you don't have capability: Speaking on the government's move to merge not so well performing banks, the former RBI chief said that there was a little bit of a catch-22 situation. "If you don't have the capacity and management capability, it is better not to pursue a merger before bringing them. You have to be careful, because mergers take time and consume a lot of effort, especially if we are merging very different entities, from different areas and with different cultures." He also talked about the recapitalisation of banks and said: "It's important to recognize that banks do need capital and you need to put it aside and if it means that there are other resources allocations that should be reduced, so be it," Rajan said.