Report card: Raghuram Rajan managed to redefine the role of the RBI governor

"The fundamental cause of the trouble," British philosopher Bertrand Russell once wrote, "is that in the modern world the stupid are cocksure while the intelligent are full of doubt".

The situation hasn't changed a good eight decades after Russell's 1933 essay, “The Triumph of Stupidity” where these lines occur. Just ask Raghuram Rajan. As he heads out of the Reserve Bank of India headquarters on Mint Road in Mumbai after a spectacular three-year term, he remains as sceptical of the financial system’s strengths as he was in 2005.

At a time when bankers and economists from around the world had gathered to celebrate the legacy of Alan Greenspan, then Chairman of the US Federal Reserve, Rajan came out with a controversial paper that questioned the financial system’s ability to support the risks that bankers and traders were taking in the open markets. "Under some conditions," the paper predicted, "economies may be more exposed to financial-sector-induced turmoil than in the past".

But Rajan's arguments were dismissed as “misguided” and he was called a “luddite” – an opponent of progress. Three years later, the global economy tanked due to the subprime mortgage crisis in the US and Rajan shot to fame for being one of the few people who saw it coming.

After 2008, the global economy has never been the same. Countries are still facing the after-effects of a long recession and the global economic demand is jittery but Rajan’s stint at the RBI has somewhat ensured that India is insulated from a big shock – unless something goes terribly wrong.

When he took over the mantle as the 23rd RBI governor, Rajan was perceived as an academic – a professor at the University of Chicago who had earned his name by authoring numerous papers and books – who would crumble under the pressure of dealing with the Indian bureaucracy and find it too volatile a work environment to handle the central bank of the world’s third largest economy.

“The guy's put 'sex' back into the limp Sensex. That makes him seriously hot," gushed novelist and columnist Shobhaa De in the Economic Times soon after his appointment. "It’s not often one gets an RBI Guv [Governor] who makes hearts go ‘dhak dhak’ each time he strides into a room,” she added.

Claiming that the economy would be “sizzling hot” with Rajan at the helm of the RBI, De did what no one would have dreamt of doing to an RBI governor before: fully objectified him, subjecting him in the process to the female gaze, bringing his “sex appeal” into the picture.

But De was onto something for sure when she noted that it was his tendency to say it like it is that made him stand out.

"Analysts are like Indian cricket fans," he'd famously declared, referring to the fickleness of desi investors. "A few years ago, India could do no wrong. Today, India can do no right," he'd brashly told the world, not so long ago.

In 2010, he'd made an inspired prediction regarding India's imminent financial crisis – "Self-delusion is the first step towards disaster." Oooops! The disaster is right here, right now. And we are fervently hoping the high-minded Hottie will wave a magic wand and save us from self-destructing ourselves.

"I have no magic wand," Rajan, however, had announced before that. But he added that he was sure the RBI would be able to deal with the challenges it faced. It did.

He inherited an economy in a shambles – with the exchange rate spiking for the Indian rupee, a huge current account deficit and sticky inflation that got worse with industrial slowdown. During his term, Rajan managed to fix some of these issues while also putting RBI on a path of innovation and financial inclusion. Not to mention his work towards cleaning up the stressed assets off the balance sheets of banks.

Rajan leaves behind an RBI that has much more public visibility than it ever did before. Once seen only as a key regulatory institution doing largely incomprehensible work in the background, Rajan gave it a voice that even ordinary people could comprehend. A boring bureaucratic position briefly became the platform for a “rockstar economist", as he had come to be labelled.

But it was his proclivity to say it as it is that often got him into trouble. When he invoked Hitler, for instance, and pointed out that a strong government may not move in the right direction. Or spoke out against intolerance or when he not only said but also went to explain why he said, “In the Land of the Blind, the one-eyed man is king", turning the occasion again into what he called "a teachable moment": "How forgiving should we be of a bad choice of words," he asked, "when the intent is clearly different?"

For all this plain speaking, Rajan received plenty of compliments and brickbats but he refused to be drawn into a slanging match or stoop to conquer. When the Bharatiya Janata Party’s Subramanian Swamy headed a campaign against a second term for Rajan, attacking him for being "mentally not fully Indian", Rajan decided not to wrestle with the pig. "There are certain allegations which are so profoundly wrong and baseless," he said, "that even a slight attempt to address them amount to give then the legitimacy they don't deserve".

But he did indicate that he wanted the second term, and had enjoyed every moment of his job, he said when specifically asked. Would his agenda remain half-finished if the second term was not granted, he was asked by the CNBC news channel. “It’s a good question. I think we have accomplished a lot... I think that ... I mean, there is always more to do,” he said.

Amul, the brand that could be considered a bellwether with its hoardings, and had welcomed Rajan "for fiscal fitness" – in "a first for a chap in his lofty position", as De had noted – seemed to sum up the overall sentiment in requesting a second term for Rajan.

The public mood was such that after Rajan let it be known that he would be bowing out but would have wanted to stay on for a second term, even the prime minister felt it necessary to break his silence, more than two months after Swamy's attacks. Calling such attacks "inappropriate", Narendra Modi added: “Raghuram Rajan’s patriotism is no less than ours...Those who speak such language are doing great injustice to him.”

The reason for this belated intervention was widely seen as an attempt at damage control.

Senior and retired officers of the country's intelligence community had been simmering in discontent at the manner in which questions about Rajan's patriotism were raised but never rebutted by those in positions of power. Rajan's father R Govindarajan was among the first of the "Kaoboys", named after RN Kao, the man who set up India’s premier external intelligence agency, the Research & Analysis Wing. Govindarajan was one of Kao’s original R&AW trainees and one of the organisation's handpicked founding hands.

The country's intelligence community, "which has always acted as the conservative conscience keeper of government nationalism, embraced him with open arms," Pranab Dhal Samanta recounted in the Economic Times.

Rajiv Gandhi had bypassed Govindarajan. Modi had done it to Rajan, by denying him a second term, and letting clouds remain over questions raised about his commitment to the country.

Rajan's parents summed it up to Arun Janardhanan in the Indian Express. “Let anyone question his policies, or style of functioning. But isn’t it unfair attacking someone personally, questioning his patriotism?” said Rajan's mother Mythili. Rajan was born in India and came to India hoping to do better things, she said.

“It doesn’t matter even if he didn’t get timely support from the government," she added. "He may be hurt but it won’t affect him in anyway.”

Rajan, however, handled his remaining tenure with characteristic grace and style. His use of wit and one-liners meant Rajan regularly made his way to the headlines and on air, but he also sought to keep the focus on the role of the central bank rather than his own celebrity status.

“Critics are there all the time,” Rajan said at a news conference last month. “There are also people who send me messages on the plane from the back; anonymous notes saying thank you for what you are doing. So, you get both sides,” he said.

During his term, Rajan took on politicians, crony capitalists as well as lethargic bankers who didn’t do due diligence before lending to big companies.

Beyond the RBI’s bi-quarterly briefings, Rajan regularly gave speeches that sought to make complex subjects more accessible. He once explained why corrupt politicians win elections and how the system is stacked against the poorest section of society using simple economics and behaviour theory.

“While the poor do not have the money to “purchase” public services that are their right, they have a vote that the politician wants,” Rajan said during a speech in 2014.

“The politician does a little bit to make life a little more tolerable for his poor constituents – a government job here, an FIR registered there, a land right honoured somewhere else. For this, he gets the gratitude of his voters, and more important, their vote.”

It is not just now that Rajan has taken to making economics accessible for the larger public. Before becoming the governor, he explained basic concepts like supply and demand through simple examples and anecdotes. One of these is from a book he co-authored back in 2004.

“It is not because of the benevolence of the baker that we eat fresh bread every morning but because of his desire to make money,” he wrote in his book Saving Capitalism from Capitalists.

After becoming the RBI governor though, he found many more opportunities to address the public at large and do the same. In February, he explained the complex economic theory behind the Balassa–Samuelson effect when a college student asked him why dosa prices do not come down in line with inflation rates.

“The technology for making dosas hasn’t actually changed. Till today that person puts it (dosa batter) on tawa, spreads it around and then takes it out, right? There has been no technological improvement there,” Rajan said. “However, the wages that you are paying to that gentleman, especially in a high-wage sort of state like Kerala, are going up all the time.”

Rajan also did not play up to the galleries and chose always to say what he thought was the right thing. “The mere rumour of the US cutting down on the federal stimulus saw the rupee crashing in value," a school child asked him last year. "When will we see an Indian policy affecting other countries so intensively?”

Rajan chose to use even this question as a teaching moment. "I have been saying that the US should worry about the effects of its policy on the rest of the world, So if I stood by that, we should not be very happy down the line when Indian policies affect the rest of the world adversely," Rajan said. "We would like to live in a world where countries take into account the effect their policies would have on other countries and do what is right broadly, rather than what is right given the circumstances of their country."

Although he was often called an “inflation hawk” for holding interest rates, Rajan did not give in to persistent demands for rate cuts, even when they came from the government. Finance Minister Arun Jaitley continuously pushed for rate cuts from the RBI but to no avail. Rajan did not yield and explained his stance by saying that he needed actual proof that inflation was low before cutting rates.

Although Rajan has been called an inflation hawk, and has even been depicted as James Bond by newspapers, among various other caricatures that caught the writers’ imagination, he said he preferred to think of himself as an “owl” and a “banker on the move”.

“Clearly I am not a superman,” he said soon after taking over as the RBI governor. But that doesn’t mean Rajan was a pushover – quite the opposite, he has been assertive. He was perhaps the first RBI governor to call a press conference on declining rupee days after joining as the governor. On other occasions, he was laconic and resorted to wry witticisms when prodded about not cutting rates often enough.

“I don’t know what you want to call me... Santa Claus... you want to call me hawk, I don’t know. I don’t go by this. My name is Raghuram Rajan and I do what I do,” Rajan told reporters once. That ended up becoming the catchphrase which many reporters now use to describe him and his career.

However, he did bat for public sector employees recently while saying that bankers at the top level aren’t paid enough. “I also feel underpaid,” Rajan joked.

On September 4, Rajan will head out of the RBI office to his academic life as a professor of Finance and Economics in the US. What he will leave behind, though, are shoes that will be hard to fill. At a time when the country is in a chaotic place – both socially and economically – and vile debates are the flavour of the season, Rajan brought a sense of stability and security that Rahul Dravid brought to the Indian cricket team when he was at the crease. Rajan's almost-stoic, calm, cool and collected demeanour is bound to be missed.

What are also going to be missed are the witticisms and wisdom he brought to our public discourse.

“If you are an outsider looking at India, learn to filter out both the irrational exuberance and excessive pessimism,” he said in 2013, while speaking at the Harvard Business School in Cambridge, Massachusetts. “We are subject to both. You will become manic-depressive if you follow our moods”.

It is safe to say that he practiced what he preached.