Lesson Modi can learn from Rajan

[dropcap]T[/dropcap]he Modi government has received endorsement from a most unlikely quarter over its stand that the NPA crisis of public sector banks originated during the tenure of UPA. Former RBI governor Raghuram Rajan, about whom the Modi government made most uncharitable remarks while denying him a second term as chief of the banking regulator, has now openly put the blame on UPA. He did not name UPA as such, but said “a larger number of bad loans originated in the period 2006-2008”.

Modi has been accusing the UPA government of creating a system of ‘underground loot’ of banks between 2009 and 2014 through what he called “telephone banking'”, where lenders gave loans without appraising the projects for which the money was being provided. “Internet banking came much later but there are such knowledgeable people in Congress that phone bank came to India before that,” Modi said.

Rajan cited the instance of an executive who claimed he was “pursued” by banks which waved chequebooks and asked him to “name the amount” he wanted in loans. The startling disclosure came in the former RBI governor’s written response to a parliamentary panel’s queries. He also found fault with the failure of the public sector banks to monitor promoter and project health before sanctioning the loans. The disclosure is strikingly close to Modi’s claims.

Considering the way the Modi government treated Raghuram Rajan, it did not deserve such a response from the former governor, who was nearly booted out for his advice against demonetisation on the ground that similar exercises in the past had never produced the desired results, but had huge negative implications. But since Modi was on cloud nine with his demonetisation idea, which he thought would help him etch his name permanently in the history of modern India, he saw Rajan as an adversary and treated him as such. The Modi establishment has just stopped short of blaming Rajan for the woes of the banking system, although he was the one who ticked off an asset quality review of the banking sector to clean up the massive twin balance sheet problem.

It is a testimony to the eminence of the man that Rajan has now told some home truths to the parliamentary panel, which will perhaps be the biggest endorsement of Modi’s claim, although the prime minister had no love lost for him. Raghuram Rajan was in his own right one of the most outstanding economists of his time globally and did not need a certificate of competence from anyone in the Modi government. In denying him a second term, the loss was India’s and not his. It is sheer poetic justice that the man who was picked up by the Modi government to succeed Rajan had to finally pronounce that demonetisation was a total failure.