India: Post Rajan

Modi’s complicity in passively handling Central Bank leadership under Rajan speaks volumes to how Modi’s party views priorities, politics and publicity.  This isn’t good news. By not standing by India’s ‘Volcker‘, Modi has acquiesced to base political instincts that will damage both India’s immediate future as well as the prime minister.  The unravelling has begun.

Modi is clearly a ‘party-man’; we’ve glimpsed into the innards of his working circle to find a profoundly disappointing politicized milieu, something akin to Indira Ghandi’s autarchy than the cosmopolitan image BJP puts forth of their man at the helm.  From here, Modi’s grasp of immediate future events is abortive. He’s only succeeding because the opposition party is in total disarray.

Days after permitting Rajan’s tenure to expire in September, the Central Bank under BJP leadership announced another round of FDI (foreign direct investment).  It floundered.

Its becoming clear that Modi’s reform agenda is abortive.  His initiatives, or slogans continue to run up against statist bureaucracy.  Although corruption is mostly tamed and new bankruptcy laws emerging, team Modi seems quaint to run existing machinery than actually overhauling it through supply side reforms.  Rajan’s openness was a dire political liability, he simply never saw it coming.  Having been educated and trained outside the social vortex of dominant Indian political economy, Rajan’s integrity was a bulwark the BJP ‘party men’ wished to destroy.  An identical crisis of intra-party leadership happened under Reagan, when Secretary of Treasury of sought to kill-off Paul Volcker’s independence after taming bone-crushing stagflation.  Remember the saying “if you want friends in D.C., get a dog”.  

So where are we in Modi’s reform movement?

He’s abandoned it, seeking political proxy wins in party politics as demonstrated in Assam recently. The truth of the matter is far uglier.  India’s liberalizing reforms of ’91 never got off the ground because its political class dropped making difficult policy decisions when the economy began to grow.  The statism remains, even today.  Modi now encourages state governments to lead reforms outside mandates from New Delhi.  India is pro-business, not pro-market.  It seeks government led job growth without touching civil society.  This will fail.  Just look at the United States now.

What the crisis of Rajan proved was this:  Modi’s dominant political class is ok with the status quo, as long as their running it.

Rajan isn’t the only one betrayed.