Wish Rajan a good future, but what about our own?

Raghuram Rajan ended his term as Reserve Bank Governor after only 3 years because petty politicians refused to extend his stint. He was appointed in 2013 when the economy had almost stopped growing, inflation was in double digits and the rupee was in free fall against the dollar. He controlled inflation, stabilised the rupee and has forced public sector banks to reveal their bad loans, so that they can be helped to clean up their books. He encouraged increased dollar flows into India to stabilise the rupee by guaranteeing insurance against any fall in the value of the currency, although he thought that the idea was an 'idiotic one'. This enticed over $30 billion to flow into India and the RBI made a profit as the rupee rose in value. The dollar bonds will be up for redemption shortly but the RBI has built up reserves of over $367 billion so it should not cause any problems. All Indian politicians firmly believe that inflation does not matter, so interest rate must be kept low at all times which will allow companies to borrow to start new projects, creating jobs. Rajan is known as an 'inflation hawk' because he believes that the economy cannot grow if inflation is high. In a recent speech he said that inflation hurts the poor, because their wages are not linked to rising prices, and helps the rich, by reducing the value of their debt. Critics say that inflation has not been controlled by high interest rates but by a fall in commodity prices, especially oil, and food prices are related to supplies and not to policy rates. True, but the poor spend a larger portion of their earnings on food and the fall in the price of crude oil has not been passed on to the customer, because the government has increased taxes on fuel. Of course, everything that politicians do, including taking numerous selfies at Rio Olympics, is for the benefit of the people. In this case it is to enable the government to keep prices stable by reducing taxes, should international crude prices rise. Politicians were especially incensed when Rajan said that " in the country of the blind, the one-eyed man is king," meaning that Indian economic growth seems spectacular because global growth, including that in China, is slowing down. Economic conditions in India have definitely improved. The government has clamped down on black money, crony capitalism is discouraged and ministries are working hard to improve infrastructure. Banks are cleaning up their books and a Bankruptcy law and a Goods and Services Tax bill have been passed. But there is a long way to go to compare, not with western countries, but with our neighbors in Asia. Monsoon has been good this year, raising prospects of lower food prices, but the humongous rise in salaries of millions of government staff will push up prices by raising demand. The RBI needs to stay vigilant. Wishing Rajan a good future we keep our fingers crossed for our own.