An open letter to Subramanian Swamy

A man with political interests may want Raghuram Rajan to be sacked as RBI governor, but an <em>aam aadmi</em> consumer will feel otherwise.

May 18, 2016 06:29 pm | Updated November 17, 2021 05:09 am IST

This is a blog post from

Dear Dr Swamy,

I am an ordinary Indian. I must admit I have not studied in, or taught Economics at Harvard University. Maybe that is why I am so puzzled by your recent letter to the Prime Minister >strongly recommending that he terminate or even ‘sack’ Raghuram Rajan , from the post of RBI Governor.

I find the economic arguments in the letter very difficult to understand. First you talk of a “deliberate and wilful” attempt by Dr. Rajan to “wreck the economy”. You say that the concept of containing inflation by raising interest rates is “disastrous”.

I don’t agree. For five long years from 2008 to 2013, I struggled to make ends meet as inflation was regularly in the double-digits, with food prices rising at an even faster pace. Therefore, I am very happy that inflation has fallen from 10 per cent in August 2013, when Dr. Rajan took over, to 5.4 per cent now. In fact, I find the Modi government also quite keen to bring down inflation. Didn’t it reduce the minimum support prices of many crops and crack down on hoarders to control tur dal prices?

You also blame the governor for shifting from the Wholesale Price Index (WPI) to the Consumer Price Index (CPI) in this inflation-targeting effort. But I remember quite well how much frustration we consumers used to feel, when everyone ignored the sky-high CPI inflation (that we could all relate to), and used WPI to claim that ‘official’ inflation was very low!

You are worried that high interest rates have squeezed small-scale industries. But what about small savers like me? I still remember the years from 2008 to 2013 when bank deposits and small savings schemes gave far lower returns than inflation rates. That’s when I switched all my savings into gold.

After all, the government may ask us all to avoid gold and invest in financial savings for the country’s development, but unless I get a positive return on my savings, why should I do it? I see that Dr. Rajan has understood the plight of savers like me. Though he has cut interest rates by 1.50 per cent in the last year, bank deposit rates have been ruling above inflation rates in the last two years. I am tempted to shift back to financial instruments.

You claim in your letter that the NPAs (non-performing assets) in public sector banks have doubled to Rs 3.5 lakh crore in the last two years. True that! I have been a reading a lot about this in the papers. But if I understand it right, the RBI doesn’t give out loans to anyone. It >only regulates the banks that do.

I am curious to know. If public sector banks, due to poor judgement or a few well-placed phone calls from political bigwigs, have given out loans to the wrong kind of corporate borrowers during boom years, do you expect the regulator to keep quiet about it? I think the NPAs reported by banks have doubled now because Dr. Rajan is arm-twisting them to disclose them in full.

As a bank depositor, I am glad of this. I sure don’t want my bank to suddenly run out of cash one day because it had skeletons in its cupboard. I also like it that RBI is stern about banks chasing down >fat-cat corporate borrowers to recover their loans. If I skip my home loan EMI because I am low on cash, will the bank take a lenient view?

Finally, I would like to make a point that may not be very relevant to your letter. When Dr. Rajan took over as Governor in 2013, I remember how newspapers were talking of a looming payments crisis in India because our foreign exchange reserves were so low. The >rupee took a nosedive to its all-time low of Rs. 68.80 in August that year (I remember this because I send my money abroad to meet my son’s U.S. college fee). But it was after Dr. Rajan took over and launched that special deposit scheme for NRIs, that the forex situation improved and the rupee pulled back.

I know that some members of your party are not happy with the Governor because he makes forthright speeches. He recently called India a “one-eyed king in the land of the blind”. Maybe that’s why you have made the peculiar claim that Dr. Rajan is not “mentally fully” Indian. But if you actually read that speech, all he has said is that India still has a long way to go and mustn’t get too complacent.

I must tell you that not just I, but also my college-going kids, have begun to pay closer attention to the RBI and the goings-on in the economy ever since we began to listen to Dr. Rajan’s talks. For once, we have an RBI official who actually smiles while he makes monetary policy statements and you don’t need a dictionary to get what he is saying. With the earlier Governors (my apologies to them) and all their talk of open-market operations and inflationary expectations, I used to think that RBI has nothing to do with me. Thanks to Dr. Rajan, I have changed my mind.

I would therefore like you to convey to Prime Minister Modi that I would vote for an extension to Dr. Rajan if I get the chance. I hope the voice of an aam aadmi like me matters as much to Mr. Modi as the open letters of his Harvard-educated colleagues.

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