The five things that Raghuram Rajan did right in his first speech as RBI governor
It is not just his looks that appeal to people, Raghuram Rajan has laurels to match. Younger and more articulate than most, RRR as he is beginning to be known, comes in as a breath of fresh air. (He is , in fact RGR). He is seen as a harbinger of change and a chance to get something right when all seems to be crumbling around the Indian economic narrative. He has solid credentials which is why expectations ride high. Which is very tough, because he is not going to be given much time to ‘walk the talk’. The policies he implements need time to bear fruit while the patience of the nation is running thin. The fall of Ozymandias is inevitable but he may just have bought himself a bit more time with a very strong starting speech.
Raghuram Govind Rajan did many things right today. His top five:
Step up and be firm
For a nation starved of leaders, here was one who stepped up and claimed his space. This was the right thing to do for a leader. He also used the chance to set his agenda before the forces of consensus, negotiation and circumstance began to weigh in on his actions. This is what he means to do, this is what he wants to do - even if it breaks from tradition. Seemingly contradicting himself while he has the support and freedom to do so - he lay claim to both predictability and the element of surprise, tacking the strategic and the tactical challenges with ease expected of a leader. Transparency and improved communications are achievements that his predecessor can lay some claim to as well - RGR takes it to the next level, and comfortably makes it his own.
Lean on predecessors and strong team mates
A good leader is as good as his team. RGR co-opts not just the present but also past achievers to support him in his (grand) endeavour. An outsider to the system, RGR knows he cannot navigate it alone. Calling on colleagues within the RBI, setting up committees with known and respected thinkers and doers to lead them, RGR already has a program in place even before he starts work. This is what the starting block must look like, and RGR shows that he and his team mean business. He leans on the shoulders of giants, shepherding them to his vision while giving them their space and the respect due to their previous achievements. As with every good team, they will hold him up, and if they fall, they fall together. With so many of them supporting different parts of his vision, something has to go right at every point of time. The lessons of a diversified portfolio are well applied here.
Think Straight - details and people
Professor Rajan’s key strength is his analytical ability. The speech read like a paper covering problem areas. As is taught in research - there are three levels at which one can analyse issues - the country, the company and the individual. Within his mandate, RGR speaks to all three, creating a matrix with the issues and their impact on these levels. Having analysed them, with typical clarity he zones in to the top three problems and highlights them. Inclusion is key. With a large portion of the system unbanked, and another chunk in the grey market, the impact of the RBI is limited. For his policies to work, he needs to be able to reach those who churn and multiply the rupee. He states that as a priority. To include more people, you have to make it easy for them - Bank Branches. Mountain, reach Mahomet. This is priority two. He sets it straight up at the top of his agenda. Popular, clean, few barriers. He even proves his Global Indian (GI Rajan?) credentials in an aside where foreign banks are given a chance to be near national but not quite. Third, the rupee. Stabilising it is important, and part of his remit. The long term plans for rupee internationalisation with a clearly stated strategy for the near future to clear up the mess created due to poor financial infrastructure has already sent a sigh of relief across the investor segment. They don’t believe it all yet, but the intent is reassuring and a reason to keep India investments on the table.
Acknowledge the tough choices but not dwell on them
RGR does not shy from speaking of the elephant on the table - NPAs. The hollow nature of bank balance sheets has been an area of concern for a few years, with little being done to remedy the problem. Even if it becomes one of his intractables, the intent is stated upfront, and, at the very least shows willingness to tackle a tough problem. The honesty in including the CPI as an index for measuring inflation rather than the - ahem- more stable- WPI price index again shows willingness to tackle the real problems. Smartly, of course he does not dwell on them and moves swiftly to proposed solutions, consolidating the goodwill he gains today.
Look ahead - plan for the years beyond the current doldrums
As a good leader should, RGR focuses on the long term. Having spoken of specifics in the near term and created enough of a shake up to move the ship out of the doldrums, he leads the conversation to the time when all problems are solved and we can look forward to changes that are necessary. Not only does he reiterate the commitment to liberalisation (which was expected, thus discounted), he speaks of how things should be - painting an idealistic vision of the future with an internationalised rupee, seamless money transfers, inflation indexed investments and mobile based transaction systems. Some of these are in process already and would considerably ease the cost of doing business in India, increasing transparency. By highlighting these low lying fruits, where investments are close to bearing result, RGR does the near impossible - bring hope to a despondent nation.
Not afraid of taking risks, he adds, “not changing is even riskier”. RGR has the classical tasks of a hero ahead of him. His speech today seeks to cut the Gordian knot via the tool of inclusion, clean the Augean Stables of NPAs among the various others he has taken on in the role of Governor. Like the legendary Alexander and Hercules, we wait to celebrate him like a Hero.
Meeta Sengupta is a writer and advisor on education, and designs interventions for a living. A lapsed banker, she retains a keen interest in macro-economics, cross border investments and geopolitics.