Raghuram Rajan (University of Chicago Professor) – Interview on Adani, Rahul Gandhi, India’s Economy and Democracy (Mar 2023)

Chapters

Abstract

India’s Economic Struggle: Raghuram Rajan’s Critical Analysis and the Adani Controversy

The Dire State of India’s Economy and the Need for Transparency

In an era marked by economic challenges and controversies, Raghuram Rajan’s incisive analysis of India’s economic growth, or lack thereof, presents a stark image of a nation struggling to keep pace with its global counterparts. India’s economic growth, languishing below 3.5% since the pre-pandemic period, places it at the bottom of the G20 nations during the pandemic. Rajan, a renowned economist, urges a shift in focus from manufacturing to service exports and stresses the importance of addressing the current slowdown with clear-eyed realism. Compounding these issues, Rajan raises concerns about the private sector’s hesitance in investment and spending, a trend that significantly contributes to the economic stagnation. He suggests that announcements of new projects by CMIE present a more accurate reflection of the private sector’s sentiment than SBI data, highlighting the need for a more nuanced understanding of the economic landscape.

Slow Growth Rate and Uncertain Future:

India’s slow growth rate, remaining below 3.5% from pre-pandemic 2019 to 2023, is a significant concern. Moreover, this rate is lower than the “Hindu rate of growth,” as famously coined by Raj Krishna. Furthermore, India’s growth during the pandemic period has lagged compared to other G20 countries. The future of India’s growth remains uncertain, and whether it will achieve the projected high growth rates of 6-8% is unclear. However, there are positive signs, such as the robust growth of India’s service exports. Rajan advocates for focusing on encouraging service exports rather than solely relying on manufacturing, as service exports have been growing rapidly and can drive India’s economic growth.

Criticism of “Hindu Rate of Growth” Phrase:

Rajan dismisses the criticism surrounding his use of the phrase “Hindu rate of growth” as irrelevant and distracting from the main issue of India’s slowing economic growth. He emphasizes the need to focus on the substance of the matter and address the factors contributing to India’s underperformance in recent years.

Growth Slowdown and Projections:

Rajan expresses concern about India’s economic growth rate, which has fallen below 3.5% over the past four years. He cautions against relying solely on projections and hopes that indicate a 6-7% growth rate, as there is a significant downside risk due to both domestic and international factors. Rajan warns against complacency and urges caution in taking growth rates for granted.

Uncertainty and Risks to Growth:

Rajan highlights the uncertainty surrounding India’s economic outlook, particularly in light of the slowing global economy and geopolitical developments that could impact oil prices and trade. He emphasizes the need for a realistic assessment of the challenges and a focus on improving India’s growth potential rather than making unrealistic projections.

The Adani Controversy: A Reflection of India’s Economic Challenges

The Adani controversy, a case study in itself, exacerbates the concerns surrounding India’s economic health. The Hindenburg Report’s allegations against Adani, while motivated by financial gain, raise serious questions about market manipulation and regulatory oversight. SEBI’s investigation into this matter, alongside calls for a JPC or Supreme Court-led probe, underscores the urgency for transparency and accountability in the corporate sector.

Transparency and Scrutiny of Rapidly Growing Businesses:

Raghuram Rajan emphasizes the significance of shedding light on areas of murkiness and ensuring transparency in businesses that grow rapidly through borrowing. He highlights the need to understand the underlying strength of businesses and ensure that they operate on a level playing field.

Investigating the Adani-Hindenburg Controversy:

Rajan acknowledges the importance of investigating the Adani-Hindenburg controversy to determine whether laws were broken and whether the Adani Group enjoyed an unfair advantage. He emphasizes the principle of innocence until proven guilty and the need to establish the facts through thorough investigation.

The Link between Economic Health and Qualitative Measurements:

Rajan discusses his previous statements linking the health of India’s economy to qualitative measurements like the quality of democracy and the health of institutions. He acknowledges the ongoing debate on whether economic growth should be prioritized over democratic values and institutional strength.

Prioritizing Both Economic Growth and Democratic Values:

Rajan argues that it is possible to achieve both economic growth and strong democratic institutions. He suggests that societies should strive for a balance between economic progress and democratic values, rather than prioritizing one over the other.

Free Speech and Governance: A Declining Democratic Space

Amid these economic concerns, Rajan sheds light on the broader societal implications, particularly the erosion of free speech and civility in India. The disqualification of Rahul Gandhi, a prominent opposition figure, for his remarks in a speech, is seen as a threat to free speech and robust public discourse. Rajan warns that the diminishing space for dissent and the increasing tendency to silence opposition voices are detrimental to the quality of governance and hinder progress. He draws a concerning parallel between India’s actions and those of less democratic nations like Russia, where critics face convictions for criticizing the government.

Erosion of Free Speech:

The disqualification of Rahul Gandhi has highlighted the ongoing erosion of free speech in India. The conviction and sentencing of Gandhi for offhand remarks in a speech underscore the potential threat to freedom of expression. The lack of free speech can result in poor governance, hindered development, and stunted growth.

Importance of Mutual Respect:

The disappearance of decency and mutual respect in political discourse is detrimental to democracy. Politicians should engage in constructive debates, not attempt to silence or expel their opponents. The lack of cooperation between the government and opposition hinders the resolution of national issues.

Parliamentary Disqualification:

The expulsion of Gandhi from Parliament, even while his judgment was suspended for appeal, raises concerns. The incident tarnishes India’s image as a vibrant democracy on the world stage.

India’s Democratic Image:

India’s portrayal of itself as a leading democracy is contradicted by the conviction of senior politicians for speech alone. India should strive to address internal issues rather than deflecting criticism by pointing to flaws in other countries.

The Indian People’s Role in Shaping Democracy

Addressing the criticism that India should fix its democracy internally, Rajan emphasizes the importance of introspection and self-correction. He highlights the impact of free speech on everyday life and governance quality, stressing the need for equal space for speech and criticism without fear of suppression. In a country where political ambitions often overshadow the greater good, Rajan’s commitment to speaking out and engaging in public discourse, despite facing trolling and criticism, is a testament to his dedication to India’s democratic ideals.

Importance of Introspection:

Indians should introspect and evaluate whether the country is on the right track. The arrest of individuals for displaying posters critical of the government is a worrisome development.

The Impact of Free Speech:

Free speech serves as a check on government power and ensures accountability. The lack of criticism and questioning of government policies can lead to complacency and neglect of important issues. Free speech is crucial for addressing the concerns of the lower-middle class and promoting inclusive growth.

India’s Future: A Beacon of Democracy?

Looking ahead, Rajan sees India’s potential to be a great power, not only in terms of strength but also as a beacon of democracy and ideals. He advocates for course corrections and encourages individuals to voice concerns for better governance. Despite acknowledging the potential impact of global economic conditions, such as a recession in the United States, on India’s growth prospects, Rajan remains cautiously optimistic, estimating India’s growth around 5%, based on credible economic forecasts.

India’s Potential:

Raghuram Rajan expresses deep concern for India’s current state and the need for course corrections to preserve its democratic ideals and principles. He believes that India has the potential to be a great power and a beacon for the rest of the world if it lives up to its ideals. Rajan emphasizes the significance of individuals actively engaging with the system and demanding better governance.

Public Role:

Rajan intends to use his ability to write and speak to address issues and contribute to India’s progress. He emphasizes the importance of doing the best with the tools one has and seeing what happens, rather than seeking formal public roles.

Trolls and Criticism:

Rajan shares his experience with trolls and mentions that the best way to deal with them is to not let them get under one’s skin. He highlights that trolls are not interested in genuine arguments and advises against engaging with them.

Economic Growth Expectations:

Rajan estimates India’s current growth rate to be around 5%, based on the opinions of credible economists who are not swayed by the desire to impress or influence. He acknowledges that external factors such as a potential recession in the United States and declining commodity prices may affect India’s growth prospects. Rajan cautions against overly optimistic growth projections and emphasizes the need for caution given the global economic climate.

The Path Ahead for India

India, at a crossroads, faces significant challenges in its economic and democratic journey. The need for transparency in business practices, the importance of free speech and civility in governance, and the role of the Indian people in shaping their democracy are more critical than ever. Rajan’s insights offer a roadmap for addressing these challenges, emphasizing the need for introspection, accountability, and a commitment to democratic principles. As India navigates these turbulent times, the country’s ability to adapt and reform will be crucial in determining its future as a global economic and democratic leader.

Notes by: datagram