Economic Recession in India:
India’s economy is officially in a recession with a 24% GDP contraction and two consecutive quarters of declining growth. The July-September GDP decline of 7.5% is better than the global average of 12% but may not be a reason for hope.

Impact on Salaried Workers:
According to the CMIE, 21 million salaried Indians lost their jobs between April and August. This represents a significant untold story of the economic crisis.

Farm Laws and Protests:
Farmers are protesting against the new farm laws, which are seen as either pro-reform or pro-crony capitalists.

Raghuram Rajan’s Views:
Raghuram Rajan, a former RBI governor, is critical of the RBI proposal to allow corporates to own banks. He emphasizes the need to address the scarring effects of the recession, such as firm closures, job losses, and educational setbacks. While demand for big firms is recovering, there is concern about the impact on smaller firms and vulnerable households.

Overall Outlook:
Raghuram Rajan expresses uncertainty about the sustainability of the current economic recovery in India. He emphasizes the need to observe and assess the long-term impact of the pandemic on demand and growth.

Sustainable Growth Concerns:
Rajan points out that job losses and business closures during the pandemic will negatively affect long-term sustainable demand. He expresses concern that India’s growth potential may have declined from 8% to 5% or less unless necessary measures are taken.

V-Shaped Recovery Doubts:
Rajan cautions against assuming a sustained V-shaped recovery based on the initial rebound from the first quarter. He notes that pent-up demand may drive a temporary surge, but the medium-term outlook depends on factors such as unemployment and discouraged workers.

Government Interventions:
Rajan acknowledges the government’s success in redistributive measures, such as providing financial assistance to households. However, he criticizes the government’s handling of growth, highlighting a steady decline in growth rates before the pandemic.

Masking of Data:
Rajan accuses the government of masking the true extent of fiscal deficits by underreporting expenditures. He cites a report by the Comptroller and Auditor General that revealed significant discrepancies between reported and actual spending.

Policy Uncertainty:
Rajan criticizes the government’s approach to policymaking, which often involves poorly prepared and unanticipated measures. He argues that such policies can have unintended consequences and hinder economic growth.

Long-Term Damage:
Rajan expresses concern that the pandemic may cause significant long-term damage to the economy. He warns that the economy may not return to the growth levels needed to employ the young population.

Overview:
Raghuram Rajan criticizes the government’s emphasis on comparing India’s economic performance to other countries rather than focusing on its own growth trajectory. He also discusses the lack of comprehensive and timely economic data in India, leading to uncertainty in assessing the true state of the economy.

Data Masking and Lack of Transparency:
Rajan questions whether the government is masking the true extent of the economic contraction caused by the pandemic, as certain sectors, such as migrant workers, lack reliable data. He emphasizes the need for transparency and the importance of collecting data that may not be favorable to the government.

Statistical Issues:
Rajan highlights the limitations of India’s statistical system, which relies on estimates and approximations, especially for sectors like small and medium enterprises. He notes that the government’s adjustments to account for data gaps may not be sufficient, and the true picture of the economy may only become clear in the future.

Policy by Jhatka:
Rajan criticizes the government’s tendency to implement sudden policy changes, citing demonetization and the GST rollout as examples. He expresses concern about the new farm laws, which, according to opponents, may lead to further concentration of capital in the hands of a few large corporations.

Concentration of Capital:
Rajan observes a trend towards concentration of capital and power in the hands of a few oligarchs in India. He questions whether the farm laws are a step towards conglomerate capitalism, where large corporations dominate the economy.

Conclusion:
Rajan calls for a focus on India’s own economic growth trajectory rather than comparisons with other countries. He emphasizes the need for comprehensive, timely, and transparent economic data. Rajan expresses concern about the potential impact of the new farm laws on farmers and the concentration of capital in the hands of a few large corporations.

Institutional Strength and Corporate Influence:
India’s corporations have significant sway over institutions, persisting across governments. The Competition Commission of India was created to address this, but its effectiveness is questioned. Monitoring institutions is essential to ensure they function as intended.

Farm Laws and Agricultural Competition:
The debate centers on whether the farm laws will increase or decrease competition for farmers’ produce. Critics argue that eliminating mandis will lead to a lack of choice and lower prices for farmers. Proponents believe that competition from other sources will benefit farmers and support the mandi system.

Balancing Competition and Minimum Support Prices:
Ideally, both structures should be allowed to compete, ensuring farmers have a better deal. Reforms should be monitored and adjusted based on emerging problems. Compensating state governments for revenue loss in mandis is a relevant consideration.

Decentralized Policymaking:
India’s centralized policymaking approach is inadequate for a diverse country like India. The center should provide an overall vision, but details and management should be decentralized. Coherence in economic policy and better consultation with relevant parties are needed.

Addressing Farmer Protests and MSP Concerns:
Consensus and dialogue are essential when significant protests arise, especially among the agricultural sector’s backbone. Ensuring private players do not buy below the MSP is a potential solution to address farmer concerns. Various fixes are possible to reconcile competition and farmer welfare.

Reforms Should Aim for Stronger Farmer Incomes:
The intent of reforms should be to strengthen farmers’ incomes. Dialogue and feedback from critics can lead to better reforms that assuage all sides.

Competition vs. Subsidies:
Raghuram Rajan suggests that competition and minimum support prices can coexist to achieve the intent of agricultural reforms. Enforcing minimum support prices where possible is important.

More Competition:
Rajan believes that increasing competition for farmers’ produce is beneficial. Farmers should not be forced to sell their produce at a single mandi (marketplace).

Transition to Competition:
Rajan proposes a gentle transition towards competition in the agricultural sector. The government can work with existing structures while adding competition.

Benefits of Competition:
More competition can lead to better prices for farmers. It encourages participation from multinationals, corporates, and traditional traders.

Structuring Competition:
Rajan emphasizes the need to discuss how to structure and implement competition effectively. The goal is to find a balance between competition and the existing support systems.

Key Points:
Raghuram Rajan expresses concerns about the RBI Internal Working Group’s proposal to allow bank ownership to rest with corporates.

Concerns:
Rajan highlights the risk of connected lending, where banks lend to their own group companies, potentially leading to conflicts of interest and diversion of funds. Rajan emphasizes that despite legal measures or regulations, it is challenging to eliminate connected lending entirely, as corporations often find workarounds. Rajan points to the directive principles of the Indian Constitution, which aim to prevent the concentration of economic power. He argues that allowing business houses to own banks could exacerbate this issue.

Concentration of Power:
Rajan notes that the banking sector has traditionally aimed to reduce the concentration of economic power, including by requiring successful promoters to reduce their stakes over time. He questions the rationale for reversing this approach and allowing business houses to own banks, which could lead to even greater concentration and less competition.

Addressing Concerns:
Rajan suggests that instead of allowing bank ownership by business houses, efforts should focus on addressing political pressure on banks. He emphasizes that adding conflicted owners who may lend to their own struggling enterprises would further complicate the situation.

Conclusion:
Rajan believes that India has a sufficient number of banks and that the focus should be on resolving political pressure rather than introducing new dimensions of conflict through corporate ownership of banks.

Public Sector Banks’ Lending Constraints:
Public sector banks in India have been reluctant to lend due to their books being clogged with bad loans. Private sector banks, which are not owned by industrial houses, are also cautious about lending given the current economic environment.

Performance of Private Sector Banks:
Private sector banks have a successful model and have not faced significant issues with bad loans compared to public sector banks. While there have been some instances of irregularities, these banks are generally more stable.

Urgent Need for Clean-up and Reforms:
The priority should be to address the problems in the current banking system rather than creating new banks. There is a need to clean up bad loans and improve lending practices, especially in public sector banks.

Comparison of Lending Performance:
Public sector banks’ small and medium enterprise loans have performed poorly compared to private sector banks’ loans to the same segment. This highlights the need for better governance and lending practices in public sector banks.

Criticism of Raghuram Rajan’s Tenure as RBI Governor:
Some critics argue that Rajan could have done more to address the issue of non-performing assets (NPAs) during his time as RBI governor. Rajan responds that he recognized the problem and initiated steps to clean up bad loans and recapitalize public sector banks.

Addressing the Issue of Bad Loans:
Rajan emphasizes the need for a well-prepared approach to cleaning up bad loans, rather than implementing sudden policy changes. He stresses the importance of identifying the extent of bad loans, seeking government support for the clean-up process, and preparing banks for the necessary changes.

Asset Quality Review and Banking Cleanup:
Rajan initiated an asset quality review to assess the true extent of bad loans in Indian banks. Banks were found underreporting the problem, and they were directed to report and clean up their balance sheets.

Cleaning Up Pace and Capital Injection:
The cleanup process was underway during Rajan’s tenure, but it should have been accelerated to complete by 2018-2020. The government should have infused more capital into public sector banks to strengthen their financial position.

Banking Governance Reform:
Attempts were made to reform the governance of banks by introducing more professional boards. However, the bureaucracy reportedly resisted these efforts, hindering effective implementation.

Concerns about the Working Group Report on Bank Privatization:
Rajan expressed concerns about the report’s lack of involvement from experts in banking and finance. The report’s recommendation to privatize banks faced criticism from various experts.

Policy Changes and Lack of Transparency:
Rajan questioned the urgency behind the report’s suggestion to allow payment banks to migrate to small finance banks after three years, instead of the previously set five years. He emphasized the need for transparent and well-reasoned policy changes, backed by expert opinions.

Dangers of Centralization of Political and Economic Power:
Rajan highlighted the risks of concentrating both political and economic power in a few entities. He cited examples from Latin America and the United States to illustrate how such structures can undermine democracy.

Competition Commission and Curbing Economic Concentration:
Rajan stressed the importance of the Competition Commission in preventing the concentration of economic power. He noted that India’s industrialists still tend to have close ties with politicians, but the younger generation is showing more independence.

Government Role in Business and Regulatory Oversight:
Rajan acknowledged that India’s business environment requires more government involvement compared to the United States. He expressed concerns about the effectiveness of regulatory watchdogs, particularly in sectors like telecom, where monopolies have emerged.

Telecommunications Sector Competition:
Raghuram Rajan criticizes the telecom authority for failing to ensure competition in the telecom sector, resulting in only three players, one of which is weak. He urges the study of the telecom experience to understand what went wrong and whether the authority favored certain entities. He raises the concern that similar mistakes could be made in other industries, such as the banking sector.

Benchmarking with Bangladesh:
Rajan highlights the IMF report that places Bangladesh ahead of India in economic performance, particularly in per capita GDP growth. He questions the goalposts of economic performance comparisons and acknowledges Bangladesh’s remarkable success in certain areas, such as textile exports. He points out that Bangladesh has caught up with India and has even surpassed it in some aspects, such as microfinance and COVID management.

COVID Management:
Rajan mentions that some African countries have performed better than India in the fight against COVID-19. He criticizes the tendency to overlook these countries due to their status as poor developing countries while India is considered an emerging market.

Economic Recovery and Stimulus:
Emphasizes the need for government spending to stimulate the economy post-COVID, particularly through infrastructure projects. Suggests prioritizing infrastructure spending that employs low-skilled labor and utilizes domestic materials, such as copper, iron, aluminum, and cement. Advocates for addressing the damage caused by the pandemic, especially to small and medium enterprises, and facilitating their access to credit and demand. Urges a sense of urgency in tackling economic recovery, as a V-shaped recovery may lead to complacency and overlook the extent of damage to the economy. Calls for export promotion while reducing barriers to importing intermediate goods necessary for export production.

Social Stability and Economic Well-being:
Recognizes the importance of inclusive social stability for economic well-being. Raises concerns about India’s perceived weakening democracy and the steady erosion of institutions such as the election commission, Supreme Court, and Reserve Bank of India. Highlights the need to strengthen institutions to protect against the accumulation of political and economic power. Views the weakening of institutions as detrimental to India’s economic and political functioning.

International Perception of India:
Acknowledges the negative perception of India’s democratic structure, with many respected publications expressing concerns about its decline. Attributes this perception to the perceived weakening of institutions and the accumulation of political power. Emphasizes the importance of strengthening institutions to reverse this perception and improve India’s image on the international stage. Expresses concern about comparisons between India and Erdogan’s Turkey, as well as sentiments of lost hope in the India that was known and remembered.

India’s Current Political Situation:
Raghuram Rajan expresses concerns about the gradual erosion of institutions in India, cautioning that it may lead to undemocratic tendencies. He emphasizes the importance of preventing the concentration of excessive political power in one party, regardless of which party holds power.

Democratic Values:
Rajan highlights a memorable incident where former Prime Minister Manmohan Singh responded constructively to criticism during a public panel discussion. He lauds Singh’s willingness to receive criticism and consider it for improvement, exemplifying the best of Indian democracy.

Political Participation and Alternative Vision:
Rajan acknowledges his deep care for India but expresses that he considers politics and public life beyond his forte. He believes in advising and pushing for positive change rather than actively engaging in politics. He emphasizes the need for a strong alternative vision to the current dominant political narrative in India.

Alternative Role in India:
Rajan suggests that he needs to learn more about India to effectively contribute to its development. He acknowledges the deficiency of a clear alternative vision and stresses the importance of creating one. He is open to spending more time in India to work towards developing such an alternative.

India’s Beacon of Democracy:
Rajan reflects on India’s past as a beacon of democracy and its influence in international fora. He questions how India can regain its position as a global leader in the developing world.

Academia’s Responsibility:
Rajan believes Indian academia has a responsibility to actively engage with public issues and offer alternative perspectives. He encourages Indian politicians, including those from the BJP, to critically assess the current direction and consider potential alternatives.

Stepping Up as an Indian:
Rajan emphasizes the critical phase India is undergoing and the need for all Indians to step up and contribute to the country’s direction. He urges citizens to question the current trajectory and work towards defining a better future for India.