The English people stunned the world this week by voting to exit from the EU. Financial markets gored investors in turn by first sending waves of money into global stocks & risk assets from Monday to Thursday of last week and then taking it all out on Friday in one fell swoop. This demonstrated the biggest risk to the global economy and by corollary to the Indian economy – massive inflows & outflows of capital on whims of global investors.
Many in India shrug this off as immaterial. They are dreadfully wrong. These massive gyrations of capital are a symptom of deep uneasiness & concern about the global economy. Take a quick peek underneath the veneer and you will see what we see – falling incomes, falling demand, falling trade, falling capital investment, falling growth, falling interest rates. This is an intensely unstable brew & it can easily tilt towards a global recession, political upheaval or both.
How bad is it? Read what Alan Greenspan, the longest serving Fed Chairman, said on Friday:
- “This is the worst period I recall since I’ve been in public service. There is nothing like it, including … October 19, 1987 the day Dow went down by 23%; That I thought was the bottom of all potential problems … This has a corrosive effect that will not go away easily …”
We completely concur with Chairman Greenspan. The next 18-24 months will be the most difficult economic & political period that any of us has ever experienced. All large centers of the world’s economy are either in a serious slowdown or on the edge of that precipice – Europe, China, Japan & now America.
This is the time for all Indians to come together to navigate the Indian economy through these turbulent waters. And we specifically mean RBI Governor Rajan, Finance Minister Jaitley & Prime Minister Modi.
So we appeal to Dr. RaghuRam Rajan to gently & privately signal his willingness to serve another term as RBI Governor. He is one of the foremost global authorities on monetary policy. And more importantly, his specific opposition to unconventional monetary policy makes him the ideal navigator in today’s economic seas. A navigator can only be successful if his captain, crew & all stakeholders have confidence in him. And Rajan has the confidence of all who matter to the Indian economy.
Yes, Dr. Rajan made a mistake last week, a big mistake. But who doesn’t make a mistake? After all, to err is human. And who is divine? In the words that every Indian knows, words of Kajol to Amitabh in K3G,
- जो माफ कर देता है, उसका दिल बहूत बड़ा होता है – one who forgives demonstrates his big heart
आपका दिल बड़ा है ना Jaitley साहेब? You have a very big heart, Shree Jaitley. Doesn’t it behoove you as the respected elder to look at the big picture & defend Dr. Rajan?
Since the election of Prime Minister Modi, we have argued that the Modi-Rajan duo has been blessed with a uniquely great opportunity – to launch India’s economy into a 30-40 year growth drive. Just the way Reagan-Volcker duo transformed a struggling America in 6 years & launched the American economy onto a 35 year growth path that it is still on.
Reagan & Volcker didn’t agree on many matters but each respected the other. And President Reagan was fortunate to have the consummate & incredibly effective James Baker on his side to manage difficult situations. Prime Minister Modi is fortunate to have the consummate & incredibly effective Arun Jaitley on his side. If any one can skillfully & deftly manage the reappointment of Dr Rajan as RBI Governor, it is Shree Jaitley.
So we make a joint appeal to Prime Minister Modi, Finance Minister Jaitley & RBI Governor Rajan to navigate the next couple of years together and to launch the Indian economy onto the glorious path that is India’s destiny.
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