BOOK REVIEW OF "I DO WHAT I DO"- RAGHURAM G RAJAN

“I DO WHAT I DO”: RAGHURAM G RAJAN: HARPER BUSINESS: PAGES 323: PRICE: RS 699.

“I was asked if I was a dove like [Janet] Yellen or a Hawk like [Paul] Volker. I was getting a little tired of these bird analogies as well as being compared with all these other people.  And so I started off laughingly, James Bondish: My name is Raghuram Rajan and I do what I do.”

Just a year after his term as Governor of the Reserve Bank of India came to an end, Raghuram Rajan’s book “I do what I do” which is a collection of his talks, lectures, and commentaries conveying what it was like to be as the head of the central bank was published. He confirmed during his tenure his reputation of a first class economist and banker and one who articulated his views both in private and public in a bold and convincing manner during his short stint as Governor of the Reserve Bank of India.

The Indian economy was in dire straits when he arrived on the scene. The rupee was in free fall, inflation was high and mounting. The current account deficit had shot up and importantly India’s foreign exchange reserves were frightfully falling. Many attempts to reign in an economy in serious trouble had failed. And more problems were in store. A full-blown crisis was expected by keen market watchers. Suddenly, a strong economy had become one of the world’s five fragile economies.

Stepped in Raghuram Rajan. He immediately went all out to bring the confidence back into the market. Besides very successful short term actions, he outlined a long term plan for growth and stability. He emphasized the strength of India’s financial institutions and exhibited his mastery over the problems to take the reforms already instituted successfully forward. Whether it was unemployment, inflation or bad loans he took all of them head on.

NPAs (Non performing Assets) and bad loans had become a major issue. Raghuram Rajan showed exemplary clarity in dealing with the ‘bad-loans’ problem. He emphasised  the importance of “early recognition of distress and fair treatment of lenders and borrowers.” In his opinion Central Bank’s policy must be tuned to “help those with difficulty while being firm with those trying to milk the system.”  In this process, he dwells on the relationship with the bureaucracy and its attempts to clip RBI’s wings. He warned against reckless lending and he launched during the end of his tenure in September 2016, the Asset Quality Review in order to compel banks to square their books of accounts. He was unfairly criticized for a slowing of credit from the public sector banks leading to a slowing down of the economy.

Controlling inflation is paramount to him. If not correctly controlled, it could lead to hyperinflation when money becomes worthless. And that was one of his first focus areas. Raghuram Rajan understands the theory and practice of this subject extremely well. He has devoted a full section titled “Hawks, Doves, or Owls” explaining how inflation has to be fought. He set inflation targets. He explains the role of food prices in causing inflation and other possible causes like minimum support price, MGNREGA, rural liquidity and credit, shift of the labour force from agriculture to construction and other areas. Monetary policy is an important tool to limit the rise in wages particularly in urban areas, says Raghuram Rajan. There is no doubt that he was successful in containing inflation during his period. “The key point to note is that a central bank serves the economy well and the cause of growth best by keeping inflation low and stable around the target set by the Government. It is a fallacy to assume that by dramatic interest rate cuts the central bank could generate sustained economic growth. RBI keeps both reasonable growth and inflation in focus and maintains the balance.”

Financial inclusion is one of Raghuram Rajan’s pet subjects. It needs a revolution. With over 900 million mobile phones, there is a huge opportunity for mobile banking. And technology with its capacity to reduce transaction costs can greatly help in large volume low-ticket transaction which is at the centre of financial inclusion..“ Despite the high return from the delivery of credit to the poor, and despite much of our financial  inclusion efforts focused on credit, we still reach too few of the target population. So there is much more to be achieved”.

There are many other topics of interest which Raghuram Rajan has covered in this book. How distress in the banking system can be resolved, how international issues could impact our economy and the last global financial crisis which he had predicted.

One strength of Raghuram Rajan that comes out in the book is his human relations. He was extremely supportive of the people who worked for him. He had great regard for all the employees of RBI and constantly motivated them to perform better. The love and regards that they reciprocated were demonstrated when he bid farewell to them.

All in all, it is book worth reading. He was neither a cheer-leader nor an unconstrained critic of the Government. He expresses his responsibilities and special concern for the country’s youth. “Of course, my past experience as Chief Economist of the International Monetary Fund, where my job was to identify macroeconomic risks across a variety of countries, gave me a unique cross-country perspective, and heightened my sense of responsibility. I also felt this responsibility from a different source. Because of the relentless press attention, I realized that many young people who were looking for a role model now saw the Governor of the Reserve Bank as one they wanted to learn from and imitate. I felt I had to display the highest professional integrity, over and above the obviously necessary personal integrity, if I were to discharge my responsibility to these youth.”

His speeches and commentaries show his mastery over the subject and he makes them understandable to the audience. No graphs or charts. There is not much of economic jargon or sermonizing. It is clear, lucid, refreshing, frank and bold. One gets an overview of our economy, the challenges ahead and how it should be tackled by the Central Bank in conjunction with the Government.