Introduction
In the realm of Indian economic governance, Raghuram Rajan and Dr. Subramanian Swamy hold significant positions. Both have had their feet in the economic dialogue, though their views on each other's governance and policy decisions differ significantly. This article explores the contrasting perspectives between Dr. Swamy and Raghuram Rajan, shedding light on their respective arguments and the perceptions surrounding them.
Dr. Subramanian Swamy's Expectations and Preferences
Dr. Subramanian Swamy, an economist and politician, sets high standards for the finance minister (FM). According to him, an FM should possess a deep understanding of economics, a technical proficiency that is seldom found with political acumen.
In an interview, Dr. Swamy emphasized, 'Economics today has become very technical. It is so comprehensive, complex, and extensive that only someone who is a professional economist, someone who has studied economics, should become the finance minister.' He further added, 'However, this person should also understand politics, which is a rare occurrence in my opinion.'
Evaluation of Dr. Manmohan Singh
Dr. Swamy has a mixed opinion on Dr. Manmohan Singh, who served as the finance minister under the Narasimha Rao government. While he acknowledges Singh's expertise in economics, Dr. Swamy believes that Singh lacked the courage to take risks. Dr. Swamy described Singh as 'a capable economist but he only followed orders.'
Dr. Swamy recalls an anecdote from his time in the cabinet, where Singh was uncomfortable being attacked in Parliament. Prime Minister Narasimha Rao offered to take the responsibility and the blame for Singh. Dr. Swamy commented, 'Those people who think that economics is common sense should understand that economics is not like when one goes to a shop and buys what is cheap and not what is expensive. Economics is about general equilibrium. An action here will have a reaction in another place.'
Raghuram Rajan's Ties to the RBI and Critics' Views
With regards to Raghuram Rajan, Dr. Swamy had some strong opinions. In 2013, when Rajan took over as RBI governor, his approach to monetary policy was met with criticism. Rajan maintained high interest rates to control inflation, a policy that Dr. Swamy deemed short-sighted.
Dr. Swamy argues, 'Rajan would keep increasing the interest rate, saying that it would control inflation. This logic was true, but he failed to take into account the effect this would have on small and medium scale industries which run on credit and where the margin is very small. This will lead to unemployment and the economy crashing. Hence Rajan had to be removed.'
Support for Raghuram Rajan
Despite Dr. Swamy's criticisms, many people have stood in support of Rajan for various reasons:
Dr. Rajan has been able to keep inflation under control by keeping interest rates high initially and didn’t succumb to political pressure. His hard stance towards inflation kept cheap money out and didn’t allow the buildup of another sub-prime scenario in India. He has cracked open the NPA issue of banks and brought the muck in the open. This cleansing of bank balance-sheets will usher in a new era of transparency and will fix the nexus of politician-banker-bureaucrat forever, as the public sector banks are the primary source of crony capitalism and high real estate prices in India. He has published far more papers than Dr. Swamy and is cited/peer-reviewed many times more compared to Dr. Swamy. He is very well respected by international media and considered to be one of the best brains in Economics. He is a far better economist than Dr. Subramanian Swamy, who may be more of a lone ranger/fringe politician.Dr. Swamy's Justification and Views
In response to Rajan’s critics, Dr. Swamy decided to talk about the core issues and let aside the number of papers published. He stressed that there is no debate that inflation has remained within limits since Rajan took over RBI in 2013. However, he argued that low inflation has more to do with the massive drop in oil prices and commodity prices. Since 2013, oil prices have dropped from US 90 per barrel to US 40 per barrel, which is a 55% drop. Additionally, he explained that by not passing the price drop benefit to consumers, the Indian government managed its high fiscal deficit and calmed down the currency.
Dr. Swamy further added, 'Fiscal discipline is a resultant of fiscal austerity which is the end result of good governance. Inflation is a resultant of the supply-side factors. Hence to say that inflation in India is down due to strong monetary policy and high interest rates is nothing but a big myth. In fact, a little bit of movement in oil prices in the last quarter has already perked up the inflation.'
The Current Perception
In recent years, the country has started to believe Dr. Subramanian Swamy more than Raghuram Rajan. It is important to note that Swamy, while a strong critic, would have been a better fit for bringing about the monetary reforms that the country needs.
Would Dr. Swamy be a complete package for a finance minister? The jury may be out on this, but his understanding of economics and his technical expertise are commendable. However, his understanding of politics might not align with the needs of the current government.
Over all, the debate around Dr. Rajan and Dr. Swamy brings to light the complexities of economic governance in India. It highlights the importance of balancing technical expertise with political acumen in the role of the finance minister.
Conclusion
The contrasting opinions of Dr. Subramanian Swamy and Raghuram Rajan on monetary policy and economic governance in India reflect the complexity of the role of a finance minister. Dr. Swamy's emphasis on a comprehensive and technical understanding of economics is well-founded, while Raghuram Rajan's hard-earned reputation and strong leadership during his tenure at the RBI hold significant weight. Further discussions and debates might help refine the profile of an ideal finance minister for India's needs.