The hoopla about our RBI Governor's non-extension of his term!!!

Most of us are aware of the disappointment expressed by the Media and certain sections of the Society (especially those who do not understand the economics at play or the functioning of the RBI) about Dr, Raghuram Rajan's so called premature departure from the post of the RBI Governor.

I would like to set 2 facts straight here! First, Dr. Rajan is not leaving prematurely as it has been wrongly publicised. He simply chose not to apply for another term/extension of his present term and Second, he decided to go back to teaching in Chicago!!! But many uninformed/poorly informed folks believe that the there was some uneasy relationship between the Finance Ministry and the RBI governor but as is the case in this universe, we, the common people, will never know the actual truth L.  Hmmm!! So, I keep wondering what was the Government's role in all this??

In fact, if this Govt was as vindictive as it is being portrayed, it would have removed Raghuram Rajan from the post as soon as it came to power since he was appointed by the previous Corrupt Congress government!! But they did not meddle with RBI or Rajan nor its functioning. All this Govt did was not placate Raghuram to stay back for another term. And why should it?? If this great RBI Governor was truly patriotic as he claims to be (or is claimed to be), then he would have clearly stayed back for another term before shooting off a letter of homecoming to Chicago L.

Let us assume for argument sake that the relationship between the Govt and RBI was a bit uneasy (which has always been the case since the 1970s barring the 5 years when the Narasimha Rao Govt was in power from 1991-96)! Even with this uneasy kind of relationship there has never been an instance (since the end of the Indira Gandhi regime) that any Govt was able to meddle with the internal functioning of the RBI simply because it is a very strong independent body just like how the office of the CAG has been functioning in our country since the end of the emergency rule!!!

So even in cases of serious disagreements between the Govt and the RBI, the RBI has always come out on top. A case in point was when Dr. Subba Rao (the previous RBI governor) took on the UPA govt on poor and corrupt lending practices being followed by that govt. But the govt could not touch him with a barge-pole!! And Dr. Subba Rao succeeded in not only completing the terms given to him but he went on to become one of India's best RBI Governors especially for the way he handled the 2008 world financial crisis!!!  And while Dr. Subba Rao never budged on the steps he took! He made sure that he gave enough impetus to growth without infringing on the inflation target. This is precisely what is expected from a balanced RBI governor!!

The worst injury that any Govermnent could inflict on this Great Institution of RBI was when it chose not to re-elect 3 deputy governors of the highest repute i.e. Smt. Shyamala Gopinath, Smt. Usha Torat & Dr. Subir Gokran!!! All these three wonderful and competent deputies were recommended for their second term by Dr. Subba Rao to be part of his team but he was sidestepped and snubbed by the Corrupt Chidambaram since Dr. Subba Rao was not obliging the then most incompetent and corrupt Congress led Government during his tenure.

The above incidents compare nothing to what the present Govt has done. The only discord that lies between the present Govt and RBI is that they don’t seem to agree on how much and fast the interest rates should go down so that the manufacturing activity could pick up fast!!  That’s about it!!! All this negative rumours being circulated by vested interests in the Media have absolutely no iota of truth!!!

While there is no doubt that Dr. Rajan is/was an impressive Governor, it does not mean that he is above the country or the institution.  In a nutshell, Dr. Raghuram Rajan was one of the many good governors that the RBI had but is/was surely not the best that we have had !!!

In fact, Dr. Rajan being a pure “Academician” was actually constrained from taking pragmatic vis-a-vis monetary policies. For instance, his obsession with a weak INR and inflation led him to frame monetary policies that were resulting in economic growth being sacrificed. And as a economic student, I have always learnt (and been learning) that a prudent monetary policy is one that guides both inflation and growth equally.

Granted that its never an easy ask/task to balance both Inflation and Growth but this is something that needs to be done/balanced for the good of the country and was successfully achieved by many a wonderful governor before such as the likes of Bimal Jalan, Manmohan Singh, YV Reddy and Dr. Subba Rao. And I need to add here that “None” of these stalwarts were academicians. They were all either bureaucrats or technocrats!!!

Unfortunately, Dr. Rajan could not achieve this balancing act. While he was definitely successful in reducing inflation (which is no mean task in itself and also helped in starting the long awaited clean-up process of our failed public sector banking system in conjunction with the govt), he failed to kick start the growth engine of our economy which our country so badly needs. Low employment is what has been plaguing our economy for a decade or so and by not supporting growth oriented policy, Dr. Rajan failed in ensuring adequate pick up in manufacturing activity that would have generated lakhs of jobs for our youth who are on the cusp of entering the employment arena. 

One more drawback with Dr. Rajan's policies was his bias towards a weak INR and that surely does not help India in achieving its Current Account Deficit. Being a good economist himself, it was shocking to see him publicly favour a weaker INR knowing fully well that India is a 80% domestic driven economy which imports 2-3 times more than what it exports. This policy of his is what has made the Indian Rupee very un-competitive in the world currency markets. This is been one of his biggest failures since he took over as the RBI Governor.

Unfortunately, most of our media as well as some of our educated class (who are not familiar with economics or the functioning/history of the great institution of RBI) just formed an opinion/judgement on Dr. Rajan based on how he looked/spoke or conducted himself in public rather than appreciate his work or what exactly he achieved as our Governor. A simple case in Point. When Raghuram took over as the Governor of RBI, the INR was quoting at Rs 68/1 US $ and as he is leaving office, it is pretty much where it was then ie hovering around 67-67.5/1 US $. I rest my case here as it does not take a genius to figure how where our country lost out :-(

It is sad to see our people still under the grips of slavery especially when it comes to how they tend to look at or treat overseas folks including our own NRIs. The bias towards good looks and accent speaking personalities is not a yardstick for achieving high quality/all round economic growth :-(  Wonder when we as people of this proud country will be able to get rid of this serious aliment???

What people forget is that Raghuram, who now teaches in Chicago, was a product of our own great IIM (A)!! So, it is this country that has made him what he is and let not anyone forget this fact. Also, if he was as patriotic as he is being portrayed, he would be teaching in one of our own Universities where we could use people of his caliber rather than him running away to teaching in the US and using the cliched rhetoric that he will always be there for the country whenever she needs him. If he truly believed he is always there for the country, then he would have taken up some assignment in India rather than fly back hurriedly from where ever he came from :-(

In conclusion, the greatest strength of our RBI has been its independence from Govt and the quality of great Governors that have occupied its top post for decades. Seeing the list of potential candidates (Arvind Subramanian, Urjit Patel, Subir Gokran, et al) that are likely to take over the Governor's post next, gives me great hope for our country as each of these candidates are phenomenal achievers in their own right. Cannot wait to see the next leader in the RBI saddle soon who will take our Great Nation's economic and monetary policies to even greater heights!!!!

Jai Hind!!!!!

The US Federal Reserve’s Conundrum

The United States Federal Reserve seems to be caught between the Rock and a Hard place!!! Before the start of Calendar Year 2016, the Fed was on course to raising rates at least 3-4 times by December 2016 and they started their intent with a small raise of 25 basis points i.e 0.25%.  The next increase was supposed to have happened in this month of March 2016 but they developed cold feet due to extraneous developments outside of their realm.  And now Federal Reserve Governer Janet Yellen comes out in public and calls for prudence and caution in raising rates.  Which means, the Fed may raise rates just once instead of the normally envisaged 3-4 times before this year ends L

Now what has changed drastically in the past 2 months is anybody’s guess because the world is pretty much in status quo mode as far as economic recovery and inflation goes.  If anything a few positive developments have happened across the globe i.e 1) The oil prices which had collapsed to a record low of US $ 26/barrel 2-3 months back have since recovered to a more realistic $ 40/barrel, 2) The worst in China seems to be over now and most of Asia (barring Japan) are showing roboust growth and moderate inflation.  Now these are surely not negative developments and that’s why I am unable to fathom Janet Yellen’s reaction L

And to add insult to injury, the equity and currency markets are having the last laugh at the Federal Reserve’s postponement of increasing rates, for they tend to gain the most as long as the interest rates remain either at 0%-0.25% so that they can continue to have cheap access to money for their horrendous vagaries L specifically for speculation in stocks, currencies, commodities, et al thereby creating utter chaos & mayhem in the global markets. 

In the past 25 years of my understanding of the Central Banks across the world, I have never come across such pressure being exerted by various segments of the financial markets on the US federal reserve.  This is truly very sad and disturbing L L.  The reason the markets are exerting so much pressure is due to the fact that for the past 12 years, they have got used to almost 0% rates of borrowing and hence they are now running scared that once the borrowing costs increase, they would not be able to speculate and make hot money in the markets that they have so gotten used to for the past decade or so.

While the Fed needs to be a bit cautious given the fragile nature of the World economy, its primary focus should be on what’s happening in the US. For the past 18 months, the US economy has been quite steady and growing at a reasonable pace as compared to its peers. The unemployment rate too has been quite low for the past 4-5 years though the quality of the employment seems to be now in question J. 

I have been a Economics student all my life and I have never seen people question the quality of the employment as much as they have started doing so in the recent past (4-5 yrs) just to make sure that they put enough pressure on the Fed not to increase interest rates. Talk about a cunning strategy J. 

The main focus of any Central Bank in the world is to focus on Inflation which hurts the common person followed by Growth, etc.  As long as Inflation is under control, the Federal Reserve will be under no pressure to increase rates but once the inflation starts moving up, that’s when it needs to act by increasing the rates.  But sadly instead of focusing on its main issues, the Federal reserve seems to be succumbing to factors that are not in its control eg China Crisis, Oil Crisis, Brexit (Possible exit of Britain from the European Union), et al. 

Probably the Fed can take a leaf out of its Indian Counterpart i.e. RBI which has been steadfast in its goal of focusing on inflation first and then the GDP growth and has been doing a fantastic job since it was founded.  It is this kind of matured functioning of the RBI is what has saved India from the Asian Currency Crisis in 1997 and the latest global turmoil that has been engulfing the entire world since the Lehman Brothers collapse in 2008. 

It is high time that the Federal Reserve starts acting in the best interests of its people rather than listen to vested interests in the market place and create a situation which would not only endanger the US economy but also the world economy at large but might even create chaos across the global markets!!  A steadfast & strong Federal Reserve is what the US and the world needs now!!

Cheers

Sriram

WHAT TO MAKE OF INDIA’s WHITE WASH AGAINST AUSTRALIA

The recently concluded Ind-Aus test series has created a lot of excitement amongst the Indian and British Cricket fraternities and “Furor” amongst the Aussie Fans, Media and Cricket Pundits alike.  While it is a commendable achievement on the part of a reasonably inexperienced Indian Cricket team to beat Australia 4-0, one cannot but help worry about the future of our test cricket team. 

This victory, however emphatic has been camaflogued by poor pitches and equally poor display of batsmanship by the Aussies. It says a lot about the Team’s mentality when the Captain keeps shouting for spinner friendly wickets time and again. The message he seems to be sending is that since we will keep struggling outside on bouncy/swinging wickets, hence it is okay to use our strengths to keep the visitors at bay in home conditions and that’s it!!

The result of this attitude is that we will continue to struggle Abroad while the Captain and the Management feel that winning in India is the best we can do.  But the recently concluded series against England in India proved otherwise!!!  The sad thing is that the loss to England has been completely forgotten, which in my opinion should be hurting the team, the captain and the Coach, the Most!!! It certainly has hurt millions of True Cricket Fans but the BCCI and the Team and its Management have not yet felt it and they will continue to thump their chests for the 4-0 win over Australia.

Come the South African tour, if the results work out as expected (a comfortable win for the South Africans is what most experts are predicting), then a familiar reaction will be expected from all quarters, the wickets are bouncy and we do not have the technique to adapt to such conditions!!  And a few heads will roll and they will be the familiar faces who generally do not perform well in overseas conditions and things will get back to normal i.e. the captain will shout from the roof-top for turning wickets and we will continue our winning ways in India (and that too is not a guarantee given that we will continue to struggle against quality spin attacks even at home!!)

It is indeed remarkable that we had the fortune of witnessing some of the all-time great batsmen like Gavaskar, Dravid, Tendulkar, Sehwag, Laxman and a brilliant all-rounder by name Kapil Dev, who have performed remarkably well abroad despite the mind-set of BCCI and our Team Management over the past few decades.

It will be a miracle if we can get another such crop of wonderfully talented cricketers ever again unless we change our archaic mindset and start to believe that we need not always depend on turning tracks to win at any cost!!!  But this I am sure is a ‘Miracle’ waiting to happen.  But if it does, then Indian Cricket will surely be turning a new leaf in its history which shall result in new highs especially in the Test Cricket Arena. 

Here’s hoping and praying that better sense will prevail amongst the Indian Cricket Administration as well the Selectors, Coaches and Players.

Cheers

All the Ruckus about Australian Cricket Team

A lot has been said about the recent performance of the Australian Cricket Team in India. I think this is pure over-reaction considering how young and in-experienced this present Aussie team is!!

It is not easy for a Team to recover from the recent retirement of "Once in a Generation" players such as Ricky Ponting and Michael Hussey.  Also, let's not forget that this same Australian team had decimated W.Indies and Sri Lanka in Australia just a few weeks/months ago!!  Granted, both W.Indies and Sri Lanka do not travel well but a White Wash is a White Wash and that too 2 in a row within a few weeks of each other is not easy to achieve even in friendly conditions!!

A Team cannot become Sub-standard or Fantastic in just a few weeks or months.  It takes years and years of hard work for a Good and World Class Team to be formed. Just ask the S.Africans and they will confirm this!!

Despite being down 0-3 against India, the performance of this Australian Team is much better than our Indian team which had toured them last year.  While not once could our Famed Batting Line-up (which included Stalwarts such as Sachin, Dravid and Laxman) cross the 300 run mark in any one single innings, this most in-experienced Australian Batting line-up has done the same twice (once in
Chennai and once in Mohali).

Also, their bowlers have performed remarkably well on spinner friendly wickets compared to our bowlers who were taken to cleaners in almost every innings in Australia. Granted that our Bowling attack was the youngest and most in-experienced to have toured Australia. But then so is this current Australian Batting and Bowling line-up.

It is amazing how the media and ex-players (who had themselves played a great deal of cricket for their respective countires) could really thrash a team this much. They should know better as they have been in such tours and such situations a lot of times.

While it is true that India is nor was the worst team ever to tour England & Australia, neither it is or will become a Great Team just because it got the better of this Australian team in India. Winning on spinner friendly wickets is not a solution to becoming a World Beating Team!!  Also, the loss to England in our own Den should really hurt us 'Bad'.

Losing to them in their conditions is one thing but being beaten in our conditions should be a bitter pill to swallow. And this both BCCI And the Indian team would do well to acknowledge/recognise despite defeating this weak Australian Team.

Similarly, Australia has to learn how to play on turning tracks much like our Indian team needs to learn to play on fast bouncing tracks both in and out of India. Only then, can it re-claim its Numero Uno position in Test Cricket.

Both the Media and Fans would do well not to write-off any team based on one or two series' performances.  It would be prudent to judge a Team purely on consistency of its long-term performance rather than its one-off/short-term performances.  Otherwise, we run the risk of analysing this 'Great Game' just like we tend to do analyse the Stock Markets i.e. on a daily basis rather than on a long-term basis.

Cheers