Wednesday, December 03, 2014

Raghuram Rajan is Modi's best friend

Sometimes you need luck on your side. India is exceedingly fortunate that Narendra Modi brings with him heaps of good luck. In the 6 months that have been 'acche din', Modi has reaped the good fortune of revived animal spirits, crashing crude prices and benign inflation. He is also going to benefit immeasurably from Raghuram Rajan's helmsmanship of the RBI.

My theory is that the real reason the Sonia - Manmohan duo have sounded the death knell of the Congress is because of bad economics. Manmohan Singh, that oft praised politician, has proved to be a total failure in the one area that was supposed to be his strength i.e. economics. He did not realise how entrenched inflation and inflationary expectations had become in India, and how burdensome a tax it is on the common man. All the doles in the world, all the NREGAs and all the food security bills possible cannot win you votes if the common guy is finding it tough to consume his daily basket of essentials. Enter Raghuram Rajan.

I often find it puzzling why politicians and indeed self proclaimed economists cannot understand 2 simple facts - 1) low inflation wins votes and 2) inflation is volatile but inflationary expectations are deeply entrenched. Every RBI meeting sees the FM raise asinine clamour for policy rate cuts. He is championed in this by 'captains' of industry, who are always on the lookout for the next dole from 'mai-baaps' in the government. Why doesn't the FM realize that lowering inflationary expectations will eventually benefit his own government? Or perhaps he wants to make sure that the 'captains' keep funding his election campaign if he obliges them by putting in a good word with the RBI governor?

Tough to say. Modi did not choose Rajan as the governor, but he will reap the benefit of low inflation for his 5 year term as PM, thanks to Rajan's efforts. Just for this, India should be thankful!   

1 comment:

SeedhiBaat said...

Just to let you know that people are still following your blog :)