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RBI Governor should be next to Finance Minister: Raghuram Rajan


The autonomy of Reserve Bank of India (RBI) continues to be a subject of importance now. The Modi government is facing allegations of limiting the autonomy of institutions like RBI, CBI, IT and other wings. Former RBI Governor Raghuram Rajan says the status of RBI Governor should be next only to the country’s Finance Minister. The RBI governor should not be under the supervision of a Secretary level officer in the Union government.

During his visit to World Economic Forum at Davos, Raghuram Rajan gave his opinions on the Indian political and economic situation. He said there will be a greater debate on agriculture distress, jobs and autonomy of central institutions in the coming general election in India. He indicates that the Modi government’s actions have affected the functioning of RBI and other institutions which will come into central focus.

AP CM Chandrababu Naidu has made repeated mention of how the central institutions were being crushed by the BJP government at the Centre. Raghuram Rajan has also spoken highly of former prime minister PV Narasimha Rao’s bold steps on bringing economic reforms during his term that put India in a steady place now.

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Farm loan waivers hurts economy badly: RBI ex Governor


One by one, political parties have started promising farm loan waiver to attract voters and win elections. This is one of the main factors for the Congress party to win over the BJP in Madhya Pradesh, Rajasthan and Chhattisgarh elections. Already, the Chhatisgarh government has initiated efforts for giving top priority to implementing farm loan waiver with immediate effect.

Against this backdrop, Reserve Bank of India former Governor Raghuram Rajan says this will prove costly to the economy of the states concerned and it will bring pressure on the financial system there. He has suggested that remedial measures be taken in this regard and that the Election Commission puts in place guidelines for preventing the political parties from making such counter productive promises.

Rajan, while addressing a meeting in Delhi, said the country’s economy has slowed down in the past five years and the system has failed to create enough jobs for the youth. For example, when the Indian Railways hold tests for filling up vacancies, nearly 250 candidates are competing for each job, which reflects the seriousness of the unemployment problem.

Rajan has earlier written a letter to the election authorities cautioning against populist promises for farmers. He says the agricultural sector is important and it should not be neglected but promises like farm loan waivers and minimum support prices will put economy under severe stress.

Telugu360 is always open for the best and bright journalists. If you are interested in full-time or freelance, email us at Krishna@telugu360.com.

Rajan’s no to AAP


As expected, former RBI Governor Raghuram Rajan has declined the Aam Aadmi Party’s Rajya Sabha seat offer. On the day the country observed the first anniversary of demonetization with BJP hailing it as a game changer in the war on black money and the opposition parties deriding it as looting the people to make the rich richer, AAP broke the news that Rajan had been approached with a request to be its candidate in the Upper House of Parliament.

A day after AAP’s announcement on November 8, in New Delhi, Rajan said in a statement from the US that he has no plans to leave his academic work. He joined the University of Chicago as a Professor of Finance soon after completing his three-year stint with RBI last year. Though he had expressed his willingness to continue for another term, despite differences with the BJP government, it let him go.
According to press reports quoting a statement issued by Rajan’s office, “While Professor Rajan is engaged in a variety of educational activities in India, he has no plans to leave his full-time academic job at the University of Chicago.”

At the moment, Delhi has three MPs in Rajya Sabha.
They are: Janardan Dwivedi, Parvez Hashmi and Karan Singh.

Their terms end in January next year and AAP is frantically searching for candidates from non-political background to fill the vacancies. With the party’s first publicly announced candidate Rajan pouring cold water on AAP bid, it is back to square one.

Telugu360 is always open for the best and bright journalists. If you are interested in full-time or freelance, email us at Krishna@telugu360.com.

Rajan for Rajya Sabha?


Raghuram Rajan for Rajya Sabha

It’s an irony of sorts for the Aam Aadmi Party (AAP) to announce on the first anniversary of demonetization that it is considering the candidature of former RBI Governor Raghuram Rajan for Rajya Sabha membership.

AAP’s opposition to BJP is well known and the party’s chief and Delhi Chief Minister Arvind Kejriwal throws down the gauntlet to Prime Minister Narendra Modi at the drop of a hat. Then why did the party spring a surprise, that too on a day when the public and the political class were hotly debating the pros and cons of note ban one year after Modi shocked the country?

Kejriwal has chosen the timing to have maximum impact on the public and the media and to hog the limelight. The very fact that he has zeroed in on Rajan who had been at odds with Modi’s economic policies, including demonetization, when he was in office, shows AAP wants to use him as a pinprick the way Congress is deploying former Prime Minister and acknowledged economist Manmohan Singh to counter Modi and Finance Minister Arun Jaitley.

It’s different issue whether Rajan would like to get involved in politics, leaving his teaching job which is very dear to him. According to an AAP leader, his party had approached Rajan offering him a seat in the Upper House of Parliament. But, he has not responded yet.

Delhi has three seats in the Rajya Sabha and all will go to AAP. They fall vacant in January next year and the AAP is mulling to nominate public figures instead of politicians for the seats. One of the chosen ones is Rajan.

However, the million dollar question is (truly) whether the high profile economist who was tipped to win the Nobel and rumoured to become US Fed chief will oblige AAP requests.

Rajan, who returned to academics to teach at the University of Chicago, after his three-year stint at RBI ended on September 4, 2016, is no-nonsensical man. His philosophy of outspokenness is said to have cost him a second term at RBI. Rajan has penned all his trials and tribulations in his recently released book, I Do What I Do.

Telugu360 is always open for the best and bright journalists. If you are interested in full-time or freelance, email us at Krishna@telugu360.com.

Demonetisation’s short-term costs were high, long-term benefit doubtful


Demonetisation’s short-term costs were high, long-term benefit doubtful

When Raghuram Rajan, former governor of the Reserve Bank of India (RBI), cautioned the government against demonetisation, saying short-term economic costs would outweigh long-term benefits, he was not trying to be prophetic. But a year after Prime Minister Narendra Modi made that fateful announcement in a nationwide broadcast on the evening of November 8, it would seem Rajan’s words had actually become so.

As economists and analysts, corporate honchos and statisticians struggle to gauge the beneficial impact of demonetisation, many of the objectives claimed by the government have fallen by the wayside. New claims and afterthoughts on the note ban by senior politicians in power have remained unconvincing. Demonetisation has raised more questions than it has answered.

The Prime Minister, in banning 1,000 and 500-rupee notes — or 86 per cent of total currency in circulation — had indicated that the decision would help remove black money from the system, rein in terrorism and take fake currency out of circulation. Have these objectives been met?

“Demonetisation was an utter failure. Theoretically it was known it cannot be successful. It could not remove black money, but in turn it has damaged the white economy and growth,” Arun Kumar, former professor of economics at the Jawaharlal Nehru University (JNU) told IANS.

The benefits of the decision are yet to percolate to the economy, but the disruption as well as pain that it caused to hundreds of millions was very real, whose lingering effects are seen to this day and, which, at that time, had shaken the country to its core, touching nearly every citizen and visitor.

The overnight serpentine queues for weeks in front of banks, the loss of over a hundred lives in the effort to withdraw one’s own money or change it, and the desperate desire to ensure that cash in hand did not turn to ash took its toll across the country. Was it worth it?

“The government made the elementary mistake of believing that black money is kept in cash. Black wealth can be transacted by non-cash means as well,” said Kumar, who is now Chair-Professor with the Institute of Social Sciences. “Only three per cent of Indians generate substantial black money. But for this, the other 97 per cent had to face the consequences of demonetisation.”

After months of vacillating, and being less than honest with citizens, RBI data in August 2017 said that 99 per cent of the banned currency in high denomination notes had returned to the banking system — Rs 15.28 lakh crore out of the Rs 15.44 lakh crore in circulation on November 8, 2016. The calculation does not take into account the money changed by people in Nepal, where it’s legal tender, or old notes held by many non-resident Indians who could not exchange it within the deadline.

“Indian demonetisation was remarkable, because unlike many countries that faced major economic and political problems after even less drastic measures, this passed off peacefully as most Indians accepted the (wrong) argument that this would end corruption,” Jayati Ghosh, Economics Professor at JNU, told IANS.

“The initial reasons the government had advanced for this move, of reducing terrorism and eliminating both black money and corruption, were rapidly abandoned for other supposed goals, which are also yet to be met. There was no planning before unleashing such a big decision,” she added.

The difficulty in making a cost-benefit analysis is that the move was not purely economic, given the fact that the currency issuer — the RBI — had no role in the decision, as testified by Rajan.

Demonetisation comes across more as a measure of political economy which may appear, on the face of it, to have paid immediate political dividend to the Prime Minister and his party in the Uttar Pradesh elections this year. But the medium-to long-term picture would take a while to clear up, though short-term impact has already taken its toll on growth.

At the end of May, the Central Statistics Office announced that the GDP during the fourth quarter ending in March this year, fell sharply to 6.1 per cent from seven per cent in the previous quarter, while growth for the year as a whole was also expected to decline correspondingly. India’s GDP during the past fiscal grew at 7.1 per cent — at a rate lower than the eight per cent achieved in 2015-16. In terms of gross value added, which excludes taxes but includes subsidies, the growth came in even lower at 5.6 percent over 2015-16.

“Demonetisation is a textbook example of what happens when you remove liquidity that is the basis of transactions. The immediate result was that people didn’t have money even for small transactions. This had a strong negative multiplier effect, most evident in the informal sector,” Ghosh said.

“Cash is the means of transaction in the unorganised sector, which contributes 45 per cent to the GDP. The unorganised sector got hit by 60-80 per cent,” Kumar said, adding that the country went through a negative rate of growth in November-December 2016.

In October, the International Monetary Fund said in its latest World Economic Outlook that India’s economic growth for 2017 and 2018 would be slower than earlier projections. The report cited the “lingering impact” of demonetisation and the Goods and Services Tax (GST) for the expected slowdown, projecting a growth of 6.7 per cent in 2017 and 7.4 per cent in 2018 — 0.5 and 0.3 percentage points less, respectively, than earlier projections.

Ghosh said that the steps on demonetisation, taken together, “generated a perfect recipe for slowdown in the economy. In fact the slowdown is likely to be much sharper than estimated because the quick GDP estimates are based on formal economic activity, and the adverse impact on informal activities have not really been taken into account”.

Ranen Banerjee, Partner & Leader, Public Finance and Economics, at PricewaterhouseCoopers (PwC) feels the country was already cooling down when the note ban came in, and it would take some time to evaluate its impact on the macro economy. “About three to four quarters prior to demonetisation growth rates were already on a sliding path. It could well be that the economy was cooling down and the trend has continued. Attributing the slowdown solely on demonetisation is not possible as we do not have sufficient data points,” Banerjee told IANS.

Economist Dipankar Dasgupta, former professor of economics at the Indian Statistical Institute, said that although GDP in India is not calculated in a very comprehensive manner, the trend growth rate continued to be “pretty robust”. However, despite the claim by the government of ending corruption through demonetisation, “day-to-day bribes are still being taken through cash”, Dasgupta told IANS.

The objectives of dealing a blow to militancy and curbing fake money too seems not to have been met, as can be seen in Jammu and Kashmir, where, ironically, more incidents of militancy have been seen after demonetisation. “Logistics like shelter, passage and cash are mostly routed through over-ground workers and sympathisers of militants and those who could arrange high value notes in the previous system are doing so at present as well”, a senior intelligence officer told IANS in Srinagar on condition of anonymity.

Similarly, about fake currency, officials said the notes carried by militants from across the border were sophisticated copies and those who made them earlier could easily make fakes of the new currencies.

Perhaps there has been some beneficial fallout on the digital economy. Industry stakeholders feel that though the note-ban drive gave the necessary impetus to citizens to start adopting online payment platforms, a lot needs to be done by both the government and the industry to make it a success.

But was the country-wide upheaval worth it to make people adopt more digital transactions? No jury would need to deliberate for long on such a question.

Telugu360 is always open for the best and bright journalists. If you are interested in full-time or freelance, email us at Krishna@telugu360.com.

Raghuram Rajan’s name in Clarivate list of Nobel Prize worthies


Clarivate list of Nobel prize, Raghuram Rajan

Former Reserve Bank of India (RBI) Governor Raghuram Rajan’s name figures in this year’s list of possible winners of Nobel Prize in economics brought out by Clarivate Analytics.

The economics prize will be announced in Stockholm on Monday, according to Nobelprize.org.

Clarivate Analytics, earlier a Thomson Reuters unit, publishes a list of possible Nobel Prize winners based on research citations, ahead of the formal announcement by the Nobel committee.

Rajan is currently the Katherine Dusak Miller Distinguished Service Professor of Finance at the Booth School of Business, University of Chicago.

Giving the list of six possible candidates for the economics Nobel, Clarivate said these were Citation Laureates — standouts whose research is clearly “of Nobel Class” according to its significance and utility, as attested by markedly high citation tallies recorded in the Web of Science.

According to information available on Clarivate’s website, in the last 15 years, 45 of the selected researchers had gone on to receive a Nobel — nine in the same year in which they were tipped by Clarivate and 18 within two years of the distinction.

Rajan’s three-year term as RBI governor ended on September 4, 2016.

Exactly one year after his term as RBI governor came to an end, Rajan published a book with his “commentary and speeches” to convey what it was like to be at the helm of the central bank in “those turbulent but exciting times”.

Rajan, who was considered a vocal RBI Governor, in his book “I Do What I Do” said The demonetisation tool used by the Indian government to drive out black money could have long-term benefits but its short-term economic costs would outweigh them.

“I was asked by the government in February 2016 for my views on demonetisation, which I gave orally. Although there might be long-term benefits, I felt the likely short-term economic costs would outweigh them, and felt there were potentially better alternatives to achieve the main goal,” he wrote.

The Indian government undertook the demonetisation drive on November 8, 2016 by banning high denomination Rs 1,000 and Rs 500 notes.

Rajan is said to have predicted the 2008 market crash caused by the housing market crisis in the US that put its economy into deep recession and set off a global slowdown.

In 2011, he published the acclaimed “Fault Lines” on how hidden financial fractures threaten the world economy.

He has won the British magazine Central Banking’s Central Banker of the Year award for his handling of the rupee crisis in 2013 and bringing back foreign investors to the country.

A graduate of the Indian Institute of Technology, Delhi, Rajan served as visiting professor at Stockholm School of Economics and at Kellogg School of Management.

He was also a visiting professor at MIT Sloan School of Management.

Telugu360 is always open for the best and bright journalists. If you are interested in full-time or freelance, email us at Krishna@telugu360.com.



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