Duvvuri Subbarao, Governor of the Reserve Bank of India (RBI), is considered within North Block to be a favourite of the favourites of the Prime Minister whose Economic Advisor C. Rangarajan apparently backs the RBI Governor as he inflicts ever greater blows on the domestic economy. Clearly, the economics textbooks that Subbarao must have swotted over decades back did not contain much about the Indian economy, for the poor man believes that price rise is a much more toxic alternative than higher growth. Somewhere buried within his lecture notes must have been the establishing of a correlation between faster development and higher inflation, for Subbarao has from the start sought to damp down growth in the economy. Only Jayanthi Natarajan, at the Ministry of Environment, has had a more devastating effect on growth than the bureaucrat-turned-banker.
His repeated pushing up of interest rates has converted much of domestic private industry into the wasteland that the public sector has become because of managers such as himself. Sectors that were once booming such as telecom are staggering towards the graveyard, while power generation has stalled even while expenditure on its generation is rocketing upwards. Just when a few business persons thought that they had escaped the toxic effects of “Rangavuri” economics, the two Wise Men have joined hands to create a fall in the value of the rupee that has been calamitous to those with foreign exchange loans needing to get serviced out of falling profits in India.
Each time Subbarao and his many admirers in the pink press claim that they are racing towards an objective, that goal becomes ever more distant, and very swiftly. The savage increase in interest rates, far from moderating inflation, has in fact added to price pressure, when corporates pass on the costs to the consumer. As for commercial banks, which the RBI claims to protect, they are looking more and more like their counterparts in the US and the European Union, with the difference that the Government of India lacks the funds needed to go in for replenishment of bank assets on anywhere near the scale of Washington or Brussels.
Because of the economic slowdown caused by high interest rates and tight money, several companies have become sick, thereby adding to the non-performing asset portfolios of banks. Housing finance was never a problem in India, because unlike the US, where the full value of a house was declared to the bank, in India the declared value is usually much less than the actual price, because of the “black” component. This has ensured that housing loan portfolios remain healthy, although of course Subbarao’s predecessor Yaga Reddy (another high interest buff) gave himself credit for this, rather than the under-valuation of properties. As for the rupee, soon after Subbarao once again wielded the whip, the currency has been plummeting. Forget reaching the age of the Finance Minister in numbers per dollar, the rupee is set to slide to the PM’s age and thereafter towards the centenary mark, entirely because of defective policy cooked up in failing memories of lectures in classrooms in faraway countries.
It was Manmohan’s favourite Rangarajan, who as RBI Governor put the brakes on the takeoff of the Indian economy which greeted the relaxation of controls by the Industry Ministry. While the ubiquity of Manmohan Singh’s spin doctors in the party circuit has resulted in all the credit for the 1992 liberalisation going to the then Finance Minister, it needs to be remembered that for Dr Singh then — as now — the only good policy was (is) one that favours foreign companies over domestic industry. Neither during 1992-96 or now has the Indian taxpayer been given any benefit by Dr Singh, who apparently believes that the poor should tighten their belts so as to assist the rich in avoiding that fate. Small wonder that “liberalisation” has become a swear word in the political lexicon of the country, in a context where genuine freedom from controls and other restrictions is badly needed.
On 19 July, Manmohan Singh went before television cameras for what must be the 400th time to claim that he was on the cusp of taking measures which would stimulate growth. Hopefully, the experience of the country will be different from that of the other 399 times, when growth fell soon after the PM promised to boost it. Given that it was Manmohan Singh who gave an extension of tenure to a wrecker of economic growth of the stamp of Subbarao, few will be holding their breath for the economy to turn around.