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Regular listeners of the Scene and the Unseen would have heard me complain
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about the predatory parasitic Indian state. But this is a bit of a simplification.
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Yes, the Indian state is a parasite, but it is not just one thing.
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It is a vast complex machine with many moving parts, and the whole is worse than the sum of
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its parts. There are outstanding bureaucrats and well-meaning politicians within the system,
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but there are also bad incentives which lead to bad outcomes.
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Also, the Indian state is a multi-headed monster, and some of those heads are often at war with
#
each other. Consider, for example, the constant tussle between the government and the central
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banker. Our imagination feasts on conflict and battle and winners and losers, but it must be
#
said that no one is making a Netflix series anytime soon on the life of a central banker.
#
Maybe they should. Welcome to the Scene and the Unseen,
#
our weekly podcast on economics, politics, and behavioral science.
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Please welcome your host, Amit Verma. Welcome to the Scene and the Unseen.
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My guest today is Viral Acharya, who was deputy governor of the Reserve Bank of India
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between 2017 and 2019. Widely respected among economists, Viral quit the RBI six months before
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his term ended, reportedly because he wasn't happy with the way the government was preventing the
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RBI from carrying out its duty. And indeed, he wasn't happy. Viral has just released an
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excellent book called Quest for Restoring Financial Stability in India, in which he lays out in great
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detail why we are in the middle of a crisis. At the core of it is a concept called fiscal
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dominance. If I had to sum that up, I'd do it thus. Fiscal dominance is a means by which a state
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thrives at the expense of society, using the central bank as its tool. If you think this is
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going to be a boring episode about finance, let me assure you, Viral is anything but a boring,
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funny technocrat. He loves cricket, he's written and composed a music album called Yadav Ke Silsile
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and can make economics and finance quite as lovely and interesting as both cricket and music.
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Before we begin our conversation though, let's take a quick commercial break.
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If you enjoy listening to the Seen on the Unseen, you can play a part in keeping the show
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alive. The Seen on the Unseen has been a labor of love for me. I've enjoyed putting together many
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stimulating conversations, expanding my brain and my universe, and hopefully yours as well.
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But while the work has been its own reward, I don't actually make much money off the show.
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Although the Seen on the Unseen has great numbers, advertisers haven't really woken up
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to the insane engagement level of podcasts, and I do many, many, many, many, many, many,
#
many hours of deep research for each episode, besides all the logistics of producing the show
#
myself. Scheduling guests, booking studios, paying technicians, the travel and so on. So well,
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I'm trying a new way of keeping this thing going, and that involves you. My proposition for you is
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this, for every episode of the Seen on the Unseen that you enjoy, buy me a cup of coffee, or even a
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lavish lunch, whatever you feel is worth. You can do this by heading over to sceneunseen.in slash
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support, and contributing an amount of your choice. This is not a subscription. The Seen on the
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Unseen will continue to be free on all podcast apps and at sceneunseen.in. This is just a gesture
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of appreciation. Help keep this thing going. sceneunseen.in slash support.
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Veeru, welcome to the Seen on the Unseen. Thank you, Amit. I'm delighted to be part of your
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podcast and I look forward to the interaction. So, you know, before we start talking about your book
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and in a broader sense about India's system of governance and our financial system and all of
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that, tell me a little bit about your sort of personal journey. Where did you study? What did
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you do? What were your sort of intellectual influences that shaped you along the way?
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Yeah, you know, I studied at, we used to live in South Bombay, in Chirabazar, in a street called
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Kaslar Street. I grew up, frankly, like any other street boy. I used to play a lot of Gully Cricket
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and, you know, Tandya and dance all the way with Ganpati from our street to the Chowpatty for
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Ganpati Visarjan and all that. I was in a school, in a Gujarati school, which also had an English
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medium called Fellowship School and the reason why I'm going through a little bit of my school
#
journey is actually that was probably the most important intellectual part of my journey
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and we were in this very interesting phase of the school where a set of school teachers,
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they decided that our school should also be able to produce students who are in the merit list
#
of the state for the SSC, the 10th standard exam and, you know, the school was very balanced
#
culturally. We had actually great music and cultural aspect to the school but on the academic
#
side, I think the teachers were excellent but, you know, cracking exams and getting into merit
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list requires a slightly focused kind of preparation and these teachers actually, around the time,
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maybe we were in seventh or eighth grade, they set this motto for all of us that, you know,
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this is the challenge, this is the luxury that we have to achieve and then, you know, it was,
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they were so motivated. Of course, parents in India are always motivated for their kids to do well
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and then we also got a bit charged up and one of the teachers, he passed away two years back,
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his name is Shailesh Chassar as we used to call him and in fact, my book, Quest for Restoring
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Financial Stability in India is dedicated to him. He was the one who kind of really set me on fire,
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so to speak. He tutored me as a private coach, so to speak, you know, without charging my parents
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single paisa for three years in a row but it was his single-minded focus that in the end
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created that aspiration, that ambition and whenever I think of him, I think of this,
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you know, Hrithik Roshan's song from Lakshya, Lakshya ko harhaal mein paana hai, you know,
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it was that kind of single-minded focus and, you know, it then sort of all worked out and,
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you know, I got into Huparal College which was sort of the college to be in if you had done well
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in SSC that time, I took electronics and then I had a friend in my street just across our building,
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you know, a lot of people you knew in our street more because you could look into their balconies
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and he had been at IIT Mumbai and so I spoke to him then, you know, we got into some correspondence
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courses, I got into IIT like everyone who does well at the GE entrance exam, I also took computer
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science without thinking whether that's the right field for me or not but after that ambitious phase
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of the school, IIT was I would say more of a self-discovery, self-exploration phase, I think
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that was the time I realized that computer science wasn't my calling, I had some aptitude for it but
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I wouldn't say a great aptitude for it, I was still doing okay through sheer persistence and hard work
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but I really felt that this is not the subject that I'm breathing, I'm not sleeping, this is not
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what I mean is I'm not staying awake because of the problems in computer science and I started
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exploring a bit and I took a course in international finance with Professor Pushpa Trivedi,
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it was an elective course in the last year at IIT Bombay and I would say Professor Pushpa Trivedi was
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like my second critical intellectual mentor in this journey because her course was really the
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turning point, it made it clear to me that economics was a subject where you could really
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bridge the macro with the micro, you know, economics is of course the study of the household
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wealth management even though most people don't realize it because they use the term economy
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etc so commonly that we think it is something to do in this grand scheme of things but it's
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really at the grassroots, it's really about the household wealth management and the fact that what
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central banks were doing, what was happening across countries on trade etc ultimately had its
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bearings in what was happening to the household demand and consumption at the last mile, I found
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that very very appealing in some ways and then you know again we had a family friend who had done a
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PhD in finance at New York University Stern School of Business, I spoke to him, he said you know this
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is a very interesting subject, it can be very analytical, very mathematical if you want, it can
#
be very applied and data oriented if you like, you can be an academic if you like or you could be
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in industry doing trading with the stocks, bonds, derivatives, whatever and I said you know let's
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take the plunge and we will see how it goes so it was too late by the time I left for my PhD in
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computer science so I did a one year sort of in computer science but then I switched my major
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at NYU and it was a very interesting phase around 97-98 when you know Southeast Asian crisis happened,
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the Russian default happened, the largest hedge fund at that time long-term capital management
#
was about to fail and that was the time I realized that financial stability is actually very very
#
crucial to an economy, that if your banks and financial firms are not in great shape
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they could become a source of huge deceleration in the growth of the economy and I always think of
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finance as the lifeblood of the economy, sometimes I think of central bank almost like the heart
#
that's regulating the pumping of these liquidity through various channels into the economy and if
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these banks which you can sort of think about as you know the arteries along the way, if they are
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clogged up then you know you can have problems in your organs, you can have problems all the way to
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the heart also and so it dawned upon me that this is a fascinating aspect of economics and finance
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and what role do banks play, what role do other forms of financial sector firms play, what is the
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role of the central bank, why is it that when banks and non-bank finance is not in great shape
#
economic outcomes thereafter typically don't tend to be very good as we have seen in India for instance
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over the last decade, so that gave me a direction in economics on my research and I've basically
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I would say stayed with that thought, that is one thought that keeps crossing my mind over and over
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and over and over again, there are so many shades to it that you can analyze, there is so much depth
#
to that question and there are so many settings all over the world because every economy is
#
slightly different, every financial sector is slightly different, you get different shocks
#
that create these disturbances in a variety of settings. So I did my research, I went to London
#
Business School, I then came back to NYU, you know around the time I was finishing my PhD
#
Dr. Raghuram Rajan had just had I would say his sort of fairly meteoric rise in the economics
#
profession, he was also studying banking and around that time also banking crises, he then
#
went on to became the chief economist of the IMF, the governor of the central bank but I think in a
#
way I would say he was probably the third important mentor even though he has never been my direct
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mentor but I worked with him after my PhD because I was at NYU, Chicago but I think he has been a
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mentor more through setting sort of like a role model in the sense that you know coming from India,
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coming from engineering into economics, finance, working in the field of banking etc that you know
#
you can make it, you know it gives you a little bit of confidence that you can break through these
#
barriers and you know have your own standing so to speak in the field and then the field is such
#
the issue of financial stability, bank central banking that it's a natural culmination for many
#
people working in this area to have a shot at the central banking management position
#
because it allows you to apply your research, it allows you a little bit to of course learn
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things on the job that you can't learn in an academics armchair and in some small way I think
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you know give back to the society and I said you know central bankers role is exactly
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what appealed me about economics. At one level you know I always give this example you're just
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earning this one interest rate dial you know by 25 basis points like 0.25% and it is supposed to go
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and touch people in the economy. Now at some level it looks kind of almost like a surreal thought
#
you know that is this really even possible but it does and sometimes it doesn't work and sometimes
#
it does and I think it's very fascinating to understand what are the preconditions so that
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sitting in your macro offices you can actually have some micro impact on on streets such as because
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the street where I grew up. So yeah that's been the intellectual journey I would say. Several
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important teachers and mentors or role models have been important. I think the real life
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experiences of witnessing financial crisis in their sort of full fury so to speak has been
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also a very important learning lesson and I think the stint at the Reserve Bank of India was
#
was probably the best thing I could have asked for personally because I spent time with my parents
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and lived with them for two and a half years professionally because it is the closest I have
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been to executive decision making in a policy role and because India is so complex so interesting
#
as an economy and it's it really challenges you to think through hard about how do you
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do things in a manner that you have more intended consequences rather than unintended consequences.
#
So you know before we proceed with your career there are many fascinating strands in what you
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just said which I kind of want to tease out and you know one of the interesting things
#
which struck me when I was you know reading up on you is that you know economics is considered
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a dismal science so most economists also considered fairly boring straightforward kind of people
#
though I should say that economics is considered a dismal science so most economists also considered
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boring straightforward kind of people though I should tell my listeners that when we began
#
this podcast he had a baseball cap on with his headphone and t-shirt but we are not shooting
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any video and you know one of the things that I'm going to ask you about later is of course
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the music album that you wrote and composed which I was listening to earlier today and also your
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passion for cricket I mean your views a metaphor of cricket a lot when you've been talking about
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the economy in the role of banks and when you were talking about Dr. Rajan it struck me that
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you know was he such into your dravid perhaps? No that's a great question yeah see
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cricket is because I kind of grew up on the streets of Mumbai you know we used to play
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on this first we used to play of course in our living room and hallway we used to play on the
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terrace you know we had you know everyone in India is everything you know so at least
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in Gully Cricket everyone is everything you do whatever the team requires it was very creative
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you know we used to play on the terrace and when the ball used to go down we used to have this
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the kite flying manja and firki instead of the kite we had a bag attached to it and we used to
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roll the bag down someone would put the ball back in and you know we would get we would pull the
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manja up to get the ball back up of course we used to then play Gully Cricket so you know it
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will be night matches floodlights and all that so you know Jite Karwadi, Khetwadi, SK Patil Udya
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and you know all these places we used to go with our with our team it was great fun I think it
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became sort of part of your DNA and of course you watch cricket so much you know when we grew up
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there weren't so many channels Udarshan probably had like maybe a little bit of Chitrahar and then
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maybe the Saturday Marathi movie and the Sunday Hindi movie so you know cricket watching cricket
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and test matches was a very big part of the whole sort of your past time so I and I I partly like
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to use the cricket analogies besides them coming naturally to me is because I think that's a way
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to connect to the common man and to me that's very very important sometimes a few of the speeches
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I've given are so bare bones that people in academia sometimes feel when I gave these talks
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that you know does it really have to be so basic does it really and my my sense is it's a question
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of what your audience is and are you connecting with the audience or not you can't there is no
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point using jargon and fancy terms and methods and techniques when you know you have to convey
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something much simpler to the common man but importantly I think these being able to connect
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is equally important with people at the top in my view I think even those who are doing very complex
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policy roles they actually prefer when things are explained in a very simple and transparent
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manner and I think that's why you know no analogy is perfect but they work because when people see
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it in a different light when they can relate to it they also start feeling that maybe there is
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something like a common thread of a principle here you know they start seeing that oh this is
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not about a very specific suggestion maybe there is something deeper that that permeates across
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different disciplines of life so that's the reason why I would say I use the cricket analogy I think
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the Dravid analogy is one that's very close to my heart it's actually linked to a question that
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a good friend of mine from IIT Bombay asked me just before they had given me a send-off before
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I went to Reserve Bank of India so we had we met at one restaurant outside our place in Manhattan
#
called Eros it's a Greek food place I distinctly remember about 10 of them had come down and we
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sat together and one of them my very good friend he asked me so who would be your role model as
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a central banker is it Ben Bernanke is it Paul Walker is it Janet Yellen and I said no it's
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going to be Rahul Dravid you know and I really genuinely mean it because I always thought he was
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the pillar of the Indian batting order during his time he was the rock bed sheet anchor whatever
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term you want to use there were so many test matches I remember watching where you know the
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entire team would bat around him and because I think of the central bank as a little bit of
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this heart that is regulating all this pushing of live blood to the economy I think that that is the
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role that is best captured I think in cricket by Rahul Dravid in fact and you know I think as I
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said financial stability is very important I think it's most important that you need someone with
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that persistent with that persistence with that discipline and with that single-minded focus of
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holding the guard when you know the situation is looking tricky you know when some of the arteries
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some of the banks are are blocked not doing very well in fact if you remember in his one of his
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last series in England which we lost I think 3-0 no he scored three centuries because he was the
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only one holding up one end and giving some hope that we might actually at least come out with a
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draw so I think that's very important I think you know and it's it's all everything you know taking
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the stance knowing where your off stump is leaving a lot of balls outside the off stump I think this
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is what a central bank has to do most of the time I think there's a lot of bad ideas I can't tell you
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how bad some of the ideas are in policy making somehow there is this one feature that because
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economics is so rooted everywhere in each household's policy making and of course the
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households are making sometimes the most interesting decisions there is also this perception though that
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we don't need to acquire any expertise in this field anyone can just go walk into these policy
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roles and start doing things now of course there will be some talented people who are so smart by
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their training on the ground that they can do it but you know however imperfect and however
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young as a field you know economics is not even 100 years old in some sense as a discipline
#
so it's a relatively young field but however young and imperfect it might be it is still a field
#
there are some principles and ideas that seem to show up in different countries in different conditions
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on a very regular and robust basis and so a big part of the central banking is is just not dealing
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with bad ideas it's these balls which are outside the off stump and so I think that's the sort of
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Raul Dravid part of it yeah I think Raghuram Rajan in some ways I think you could you could be
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you are right I think he could be Tindulkar but my sense is he's also probably taken a fairly long
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term view I think during his time as central banking you know the moves such as the beginning
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the steps towards inflation targeting framework in India then you know creating a differentiated
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banking system opening up bank licenses and third you know creating this database Krillik
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as a repository for information on large corporates I think all of these were fairly long term moves
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actually so I would say by and large you know to use another example maybe he's like Raul Dravid
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but he also has Virat Kohli's aggression at times yeah I'm also a big fan of Dravid of course and
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you're absolutely right if you look at all of India's important test wins overseas and in that
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particular decade you know heading Lee Adelaide Ravel Pindi the series we won in the West Indies
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Dravid was completely at the heart of it I'd save the question for later but since you you know
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brought up that subject I'll kind of ask it now which is you spoke about the importance of you
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know communicating ideas and sort of keeping it simple and you know I teach an online writing
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course where sometimes students will ask me that listen you know I do academic writing and people
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in academics expect the kind of a certain kind of jargon and a certain kind of signaling and all of
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that and my response to all of that is that in any context clear writing is a good thing I can
#
understand that sometimes there are those imperatives where people will expect you to use
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language that puts them in their comfort zone but as clear as possible is always a good thing and
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the imperative of you know writing clearly makes you think more clearly because if you're stating
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something in simpler language as you do throughout in your book then you're forced to put that kind
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of thought into it but my broader question which I wanted to come to was that you know when you
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know when you wrote this book one of the reasons that you said for writing this book was that you
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wanted to start a debate that you felt very deeply that these issues which you're talking about
#
financial stability fiscal dominance they are of great importance they should not only be debated
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by policy people the public at large should understand them and sort of talk about them
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which is an incredible aim but at the same time it struck me and this is something that you know
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people who write about economics have been saying forever that you know a lot of the fundamental
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ideas of economics are deeply counter-intuitive you know spontaneous order positive sum game how
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complex systems work and similarly you know there is both bounded rationality which and what public
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choice there is called rational ignorance that for a common person to put in the effort to
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understand the economy as it were it's probably just too much of an effort it's much easier to
#
pick a political side which everybody more or less has and then you go with whatever that side is
#
doing you defend what they are doing and if you're not with them then you attack what they are doing
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which is how most of our public discourse is today so how did you approach that challenge
#
because these are not easy ideas to sort of you know grasp for you know a lay person so you know
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what were the thoughts that I mean you've used cricketing analogies and all that and that's worked
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beautifully and so on but is that something you consciously thought about that how can I communicate
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these yeah absolutely and see the important thing to realize in policy making is that
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see over certain functions the central bank probably is given legislative autonomy so what
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I mean is that think about the inflation targeting framework it is actually by an act of law as an
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amendment to the reserve bank of india act that the central bank through this monetary policy
#
committee can set the interest rate this is the objective function and so on but in many other
#
functions of the central bank the operational autonomy is very loosely defined a lot of the
#
decisions especially in india as I explained in the book given the presence of public sector banks
#
and other public sector financial institutions are very often taken either jointly with the
#
government through some discussion conversation consensus or if the central bank has to even take
#
certain decisions the government has to empower the central bank through some legislative changes
#
now why am I saying all this what I'm trying to convey is that for many good policy decisions to
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be taken politics has to be aligned with the economics the government has to want what is
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what makes sense in the long run for the economy as a whole now a fundamental thesis of my work
#
the book as well as the raul dravid analogy is that there are pressures sometimes to actually
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not play the long test match there are pressures to instead play t20 you know to go and entertain
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the crowds instead of actually winning session by session through endurance and because the
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political decision making can often be very geared by the short-term consideration and you
#
you put it exactly right why is it that short-term growth will actually give them political gains
#
it's because the average person on the street may not be able to figure out that the short-term
#
boost in activity either because they are getting a lot of credit or the government is distributing
#
a lot of cash through a variety of schemes that that short-term activity is down the line at some
#
future point of time in three or five years time going to come back with a lot of costs because
#
costs because maybe the loans that were made were made without due diligence or the cash that has
#
been distributed is going to be very hard to repay down the line now so sometimes in the common man
#
both because of them having to work so hard on their own economics and perhaps because of
#
limits to information processing and rational evaluation of data and you know i think the
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counterfactuals what if that is the key question that you have to ask in policymaking what if this
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were to happen those things are not always very easy for the common man to perceive and if they
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can't in a way that creates the opportunity for the short-termism to actually lead to gains that
#
if i do this pump priming of the economy it can actually lead to some benefits during the electoral
#
cycle now if that is not in the long-run interest of the economy in my view those who can actually
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perceive what the impact of these short-term pump priming of the economy is those who are in the job
#
such as at a central bank where your objectives are enshrined in the law to be long-term protecting
#
depositor interests keeping price stability guarding the value of the rupee etc all of
#
these require sometimes making short-term sacrifices so that you know you keep the ship afloat
#
and in good condition so i think it is it is the responsibility in my view of the central banker
#
to actually use communication as one of the tools to advance the public discussion and therefore i
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think it has to go to the common man as well i think it's not good enough that it reaches the
#
circles of finance industry bankers market participants you have to try and get it into
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mainstream media as much as possible and i think the reason is that once you shift the public debate
#
once you create a demand for the right long-term reforms in people themselves
#
then the politics and economics there's a greater chance that you will align see sometimes politics
#
aligns with economics because you know there may be a situation where the government has no choice
#
but to do the right thing for the long run because otherwise investors will not give you money
#
like think of 1991 liberalization moment it was a moment where structural changes to the
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indian economy were thrust upon us by the imf because we needed their support and there was no
#
other way out so that's one way to go but you know reforms do happen all the time sometimes they
#
happen promptly sometimes they happen with delay and why do we get these moments where the political
#
consensus arises who undertake these reforms very often i think it's because there is a demand for
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reforms in the common man's mind in the common man's perception in media on television in print
#
media now in podcast twitter whatever it is but you sometimes get this good ideas being planted
#
seeded and then they're sort of germinating and rising to the top of an agenda and as long as
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there's a critical mass of discussion around the right ideas i think there's a greater chance that
#
the politics and economics will align i think we need to create more such opportunities and to do
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that we can't just wait and watch i think we have to plant these seeds of ideas very often
#
the ideas germinate and they are not even associated with you and i think that's perfectly
#
all right i think you are just trying to get people to debate because very often the person
#
who comes up with the original idea and plants the seed may not have the right solution maybe
#
he or she doesn't actually appreciate all the realities of the political economy but once the
#
idea is debated maybe a better solution emerges but to me this is absolutely crucial policymakers
#
have to communicate they have to communicate with the common man besides the more sophisticated
#
parts of in their relevant sphere of influence and i think this is the way change comes about so
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i think to cut a long story short i think Amit what i'm trying to say is that while it's true
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that there is bounded rationality there is limited processing of information
#
and of course decision making is very concentrated but we have to build a bridge between these two
#
we have to get people to come a bit closer to the decision makers in terms of their discussions and
#
debates we have to get the decision makers closer to the common man by alerting them about the
#
long-run consequences of some of the policies and why some things make sense and others don't and i
#
think how do you bring them together i think your communication is one of the kind of almost at a
#
it's a negotiating tool actually you are bringing these two parties which often seem at far apart
#
together through public debate and discussion absolutely i think this is a very crucial role
#
and i think i'm seeing this also in the modern day central bankers i am not on social media myself
#
as a policy but i can see that many central bankers are now actually using even social media to have
#
an outreach of their ideas many central banks are now actually co-operating with each other
#
are now actually quote unquote organizing panels and sessions at industry events or academic
#
conferences because they want actually to be part of the broader discussion and debate so i think
#
over three to four decades we seem to have moved away from a very boring quiet central banker to
#
a somewhat i wouldn't necessarily say outspoken always but sometimes even outspoken but certainly
#
i would say communicative and interactive central banker who's using communication as a very very
#
important tool both as for this negotiation function as i mentioned between politics common
#
man and economics and i think also to actually explain what they are doing because that gives
#
them a democratic accountability of their actions you know because in many cases central bankers
#
are technocrats they're taking very technical decisions as i said what is this changing of
#
this tile of 25 basis points or 0.25 percent of interest rates but if you can communicate
#
and explain this well to the common man that increases your democratic accountability from
#
the technocratic decisions that you are taking yeah i mean i mean the challenge of doing that
#
is something that i've been you know discussing with friends for ages now because a lot of my
#
friends work in the policy sphere where they'll work with politicians and bureaucrats and try
#
to sell policies and my point to them always has been that you know if you think of the
#
political marketplace you have to focus on the demand and not the supply end that politicians
#
will respond to incentives so if you can change the demand and then you have people who demand
#
something different then you're far more likely to get those sort of outcomes and you know again
#
andrew breitbart once said politics is downstream of culture which is you know again that whole act
#
of changing the culture seeding these ideas like you pointed out is a decades long year
#
decades long game you saw it in america with you know gold what you're losing in 64 and then reagan
#
coming to power in 80 it takes many many uh sort of years to play out before we get to you know
#
the specifics of the indian economy and your time uh in the reserve bank of india i'd also like to
#
just for a moment uh get some more background on where you're sort of coming from i mean we are
#
essentially the same age i think i'm a couple of months older than you and therefore this was a
#
question that first struck me when i read about your journey that i kind of spent a certain part
#
of my childhood in pre-liberalization india and then my adulthood is in liberalization india
#
and it so happened my dad was in the i.e. so i was of course steeped in the received wisdom of
#
that fabian socialist era where your state is you're my bap and that's the way you look at
#
the economy and then you're an adult and sort of the blinkers fall off one by one and you see
#
everything uh uh kind of uh differently what was your sort of intellectual uh evolution through
#
that period like what you know did your notion of your country and what we were doing right and what
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we were doing wrong did your idea of india as it were uh you know evolve during that period
#
especially for example when you went abroad it must have given you that distance where uh
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you know you can be a little more objective about it you can contrast it with what you see around
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you uh take me a bit through your sort of mindset and uh your idea of india as it were how it evolved
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in that period yeah uh so i think you know as a child maybe even in my school college perhaps
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even iit days i wasn't so clear about what exactly india was relative to the rest of the world with
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great clarity of course what was very hard not to notice uh was the fact that it seemed very
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heavily controlled and administered economy certainly until the early 90s
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it seemed like everyone had very few career choices so there clearly weren't too many
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thriving industries in the country and you knew from all the you know the great demand for
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or imported goods smuggled or otherwise that people in the rest of the world were producing
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goods that were far better than were produced in india and so you kind of knew something at
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the back of your mind that you know that that something is not happening right though you
#
can't kind of put your finger on it yet you know that why is everyone wanting everything that's
#
produced abroad and then i think when i first came to the united states i saw the extent of
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variety of produce of various types the efficiency of customer service on the ground
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the sheer buzz and activity in the economy etc i kind of realized that this is a very different
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uh manner in which this economy is organized and then you suddenly started realizing that at a
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deeper level all countries are somewhere on a continuum of you know sort of like pure capitalism
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and at the very extreme communism and you know different countries depending upon the policies
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they choose at a given point of time are actually shifting their position on this and you know that
#
happens including china which started off at the very extreme but now has embraced certain kinds
#
of market reforms versus say united states which used to be a lot more capitalistic at one stage
#
but increasingly people think that for example its entire housing market risk is socialized
#
through the guarantee programs that it has it thinks that it has given way to very concentrated
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uh power in certain sectors and you know maybe there's some forms of crony capitalism also
#
coming in in some guys or the other so you know countries are always shifting their positions
#
along the spectrum uh and then so that's how so i don't uh so you know my my view of countries
#
is that each country is unique each country has its own preconditions which are very important
#
in shaping the ideology that the people have as we were discussing sometimes this ideology itself
#
needs to be shifted or changed to happen so the initial conditions are important because they have
#
left a legacy of ideologies in people's minds but in some ways they are also on a spectrum
#
and you can actually uh think about them understand them uh understand the outcomes the policy
#
choices by actually using economics to understand when what kind of policies get accepted when is
#
a country more likely to embrace capitalism when is it more likely to regress towards inward looking
#
uh protectionism combined with you know socialism or at the very extreme sort of communist kind of
#
policies but the idea that really struck me the most was actually this idea of austrian economists
#
you know Hayek most most because he also was very closer to finance but to an extent also won my
#
sis and others that that what the that what too much state control of the factors of production
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does in the end uh is that it makes the individual essentially lose his or her entrepreneurial
#
spirit because you know that even if you are entrepreneurial there are so many barriers
#
to entry there are so many regulations licensing etc to go through
#
or and at an extreme you are not even allowed because the entire sector may be nationalized
#
and you don't even have private entry that's allowed and that just chokes the individualism
#
it chokes the entrepreneurial spirit of the individuals and when i read about the
#
uh of course Hayek uh you know in his in his most one of his most famous books is titled the road
#
to surf down and he's basically saying you know you're we're going to be producing surfs
#
when you adopt these kinds of centralized decision-making policies and and that appealed
#
to me a lot that over long stretches of time uh having too much and control of the
#
center is ultimately going to kill off entrepreneurship innovation enterprise
#
and that we can see an idea that when you are going through a situation like the great
#
depression or the great recession you need the state to play an important role to kick start
#
investments kick start job creation you know give a softer foundation to the state and
#
job creation you know give a softer landing to the economy while it is good it should only be
#
interpreted as something that you should do as a temporary stopgap stimulus quick and you know even
#
even a short stimulus can go pretty bad as we know but but at a minimum it has to be seen as
#
a temporary arrangement because if that becomes the permanent style of the economy that the
#
government tries to do more and more and more then you will have less and less and less of the
#
private sector because their enterprise is actually getting killed and actually in a subtle way while
#
i'm not so explicit in linking it to the austrian economists in my book that has always been at the
#
back of my mind that you know i have these one there's the eddie schroff memorial lecture in
#
the book which is on the central banks independence and then the last speech in the book is actually
#
on how governments crowd out and have focus there on finance but when an individual loses
#
the entrepreneurial spirit that is actually crowding out because that that entrepreneurial
#
spirit has no role in the in a nationalized or very heavily centralized economy and to me this
#
is a key theme of our times right now in my view because what has happened is the slowdown of
#
global economic growth especially post the global financial crisis though many would content this
#
was happening even before in 90s and early 2000s but this slowdown has created a chain of events
#
in which more and more is being done by the governments the government balance sheets the
#
world over are getting plotted they are spending a lot they are trying to take over significant
#
parts of job creation subsidies guarantees risk taking on their balance sheets in fact many in
#
the united states think that increasingly most financial sector risks are now socialized whereas
#
the gains remain privatized and what this has done is that i think we really risk the fear
#
we really risk the prospect of and we have to fear that prospect that we lose actually the
#
entrepreneurial spirit of the global economy the the idea that the best solutions cannot come in
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the administrative bureaucratic offices of the government where only a small part of the economy
#
sits there you know the millions are actually out there on the streets in their homes they are the
#
ones where the brightest minds are likely to be for a specific idea and if we don't find a channel
#
for these entrepreneurial ideas to form shape you know for them to organize themselves as businesses
#
maybe fail but fail fast and restart or many of them succeed to becoming the best enterprises going
#
forward i don't see how we can arrest the slide we are seeing in the global growth and productivity
#
so at a very deep macro level i think this is the shift that has happened it has become more
#
pronounced since the global financial crisis my view is that india is also undergoing such a shift
#
we were very nationalized and centralized until the late 80s then we liberalized we also had a
#
big set of divestment reforms during 98 to 2003 but my sense is the policy responses since the
#
global financial crisis are in line with the rest of the world in the sense that we have now also
#
moved towards greater and greater centralization of the economy what doesn't help us is that our
#
initial conditions feature already a big presence of the state in many many sectors even non-strategic
#
sectors we have a big presence of the government in the form of public sector banks public sector
#
own insurance companies and power finance companies etc so again on this spectrum i see india
#
india increasingly regressing a bit towards more centrally controlled economy and not relinquishing
#
actually the control and the fear i have is that this is going to crowd out the private sector
#
i think in my view the reason why private investments in india are not high it's not
#
just because we had a bad loans problem yes we did have a very severe bad loans problem because
#
of the fiscal stimulus of nine to eleven twelve and you know those sectors are still not fully
#
back up but i think one big reason why private investments are low is because costs of borrowing
#
are very very high cost of capital is very high and why is the cost of capital very high is because
#
so much of the savings in the economy are borrowed by the government itself and so i would say both
#
as an as someone who grew up during the nationalized era without any clear thinking
#
but with a lot of questions at the back of your mind then someone who witnessed what used to be
#
a very open capitalist society in the united states and you know i spent seven years in london
#
between 2008 and that was the time i realized that everything is on a spectrum because when i observed
#
the european economies i realized it's all on the spectrum but having seen this global experience
#
i think this is the theme that i would say has struck me the most which is what is the right
#
balance between the government the private sector the banks and the central bank can you ensure that
#
all four wheels are moving in tandem and together with no attempt to drive the car entirely on just
#
one wheel because you know if you do that there is only so far that your journey will take you
#
so i have just realized that we are not just united in our admiration for dravid it's also
#
an admiration for hayek but so i'll you know digress a bit and and i want to spend a lot
#
of time talking about your book and your insights in it of course but i'll continue digressing
#
a bit and a thought that kind of struck me as you were you know going through this narrative of how
#
your thinking changed and yet how the you know world has moved in a certain kind of direction
#
is that it seems to me that one of the great battles in our times is not a battle about what
#
ideas work and what ideas don't work instead it is a battle about what narrative sells and what
#
narrative doesn't sell for example after the 2008 financial crisis if you ask most people what
#
happened they will say oh it's the private sector is greedy bankers you know as you've spoken about
#
it yourself you know Fannie Mae and Freddie Mac had a big part to play in that the incentives that
#
were there by the government perhaps you can go back to 1977 and talk about the community
#
reinvestment act a lot of it was the overbearing oppressive hand of government which created those
#
terrible incentives and led to those players behaving in the ways that they did and you know
#
i've always found it dubious that you know when americans say that you know losses are being
#
socialized profits are being privatized absolutely right and you know that should not be the case
#
you create a moral hazard there you create the wrong incentives but the broader point is that
#
despite the fact that everything that's been happening across the world all the economic
#
failures all the political failures that i see are in some way or the other linked to the role of
#
the state and the incentives that you know they are setting and yet the dominant narrative is
#
everywhere that it is greedy capitalist and the state is a solution and the state needs to sort
#
of clam down and instead of Hayek who is almost again a forgotten man today you have Keynesian
#
ideas again taking a center stage is this something that you think about because on the one hand you
#
would like to imagine that look you know you pick the ideas that work you go through history you
#
know you see everything play out you figure out what works and what doesn't you go for what works
#
and yet it's not the idea that works it's a narrative that sells that is on the ascendant
#
does this worry you absolutely it worries me a lot and i think that it but there's also a
#
challenge in there as we were discussing earlier i mean which is that see why does the narrative
#
of Keynesian stimulus or state control during financial crisis or while coming out of a very
#
deep recession work is because actually even conceptually and in theory there is good rationale
#
for that to be the case because you know there is what economists call as a market failure which is
#
that you know in a financial crisis what happens to say one bank is going to have such a bad
#
influence all over the system that or if a large number of firms fail you know the recession or
#
house foreclosures they are all going to affect adversely the rest of people so there is a good
#
theoretical rationale and it works what is not well appreciated is that but there are conditions
#
in which this begins to start doing harm because of political capture of the government presence
#
in decision making by say crony capitalists second there could just be outright short-termism on part
#
of the governments in third there could be massive crowding out effects including of the individualism
#
and entrepreneurial spirit leave aside just higher borrowing costs for private sector and so on
#
so i think what happens is that it's very appealing to describe these narratives as one zero so you
#
know you find that individuals are either all entirely pro-capitalism or you see individuals
#
who are entirely pro-socialism and you know everything being done by the government
#
but the reality is that what works best is if you are nimble about the state of the world which
#
is based on your economic conditions how much balance you need to put between these two extreme
#
positions because as we were discussing clearly in a financial crisis you need the government to
#
actually backstop and get the system back up but then there should be a graceful unwinding of the
#
extra government imprint that got created now that second part is always missing whenever the
#
governments are stepping up their positions you know part of it is you know the fact that
#
it's easy to sell a one zero idea then to be nuanced and balanced and say oh we'll do this
#
now but you know in three or five years when things come down we will we will withdraw
#
second very important constraint is that very often the stimulus decisions are taken by one
#
government and even if they were to put in place a decision to withdraw down the line that is going
#
to have to be implemented by another government now whatever the first government has announced
#
may not be binding on the second government for doing this and you could also get this kind of
#
then possibly a populist trap which is that once one government does this as a stimulus
#
the other governments want to keep on with it because it allows them to continuously do the
#
short-term pump priming of the economy to show that they will look good so but I want to come
#
back to the challenge what is the challenge the challenge to me is that we need to have a more
#
balanced debate about these issues whenever the stimulus packages are announced we need to
#
simultaneously assess their costs we need to think about their long-run consequences
#
and we need a lot more discussion transparency accountability in my view of these packages
#
and conversely sometimes when you are too much in what looks like a capitalist society very often
#
seeds are being sown either for crony capitalism or for banks and the financial sectors taking on
#
too much risk which ultimately the governments will have to backstop if the entire system collapses
#
because you'll have to protect the depositors in the end and so you also need to guard against
#
that and so it's all about I think striking the right balance and you know giving a balanced
#
perspective is by and large not not easy to gain popularity with and I think that's where I think
#
so the challenge is that from a political standpoint I think it is easy to give one zero narratives
#
because that creates more polarization and might give you enough median voter outcomes that are
#
desirable for you I think the job of the accountants the think tanks the economists the policymakers
#
or the independent policymakers the technocrats I think their job in my view is to continue to
#
push the dialogue so that you make it clear listen it's not one zero it's about striking the right
#
balance and this balance shifts a little bit in different points of time based on what kind of
#
situation in your banking crisis yes the central bank and the government need to do more but once
#
you move away from that the role of these two has to diminish and you have to let the private sector
#
flourish again while recognizing that you don't want sort of another full-fledged financial crisis
#
again in some ways actually this is what financial stability to me is all about it's about allowing
#
the system to flourish privately while safeguarding that in a stress scenario it will have the right
#
levels of resistance and so the if I could just end with an example here which is the example I
#
like a lot in thinking about financial stability and in general this balance between market friendly
#
versus government centered policies is really about building a bridge see I think of financial
#
sector as basically a bridge that carries savings from one shore across two borrowers on the other
#
side you know a bridge artery whatever you want to call it now how do the engineers approach the
#
construction of the bridges so yeah there are standards and what are these standards the
#
standards are that you should be able to withstand some fairly high cyclonic hurricane kind of things
#
now that is not the normal outcome if you left a private constructor entirely to do this by
#
themselves they may not put in the adequate number of trusses and extra robustness in the bridge
#
but there are some protection or safety standards that ensure that when the situation is going to
#
be bad and you still need the bridge to actually stand there either to transport that time itself
#
or to be available right after the cyclone has gone away you need that robustness investment
#
to be made ahead of time and my sense is that if we took this approach which is that we led the
#
system function most of the time with the individual's entrepreneurial spirit but we
#
create defenses so that when things go bad the mop up by the governments the central banks etc
#
doesn't have to be heavy-handed because you've already built so much robustness in the system
#
that it's only in the very extreme wind conditions that the bridge might collapse then of course you
#
need to reconstruct or that you will have to do minimal repairs because actually your bridge
#
was so strong to start with i think i think this is the shift in mindset that is required it requires
#
thinking long term it requires entertaining stress scenarios that are not your present-day challenge
#
and it requires taking making some sacrifices you're going to have to increase the cost of
#
production of the bridge it will not be built as quickly as you thought would be built otherwise
#
but i very much see the role of the economists think tanks policymakers analysts as so important
#
in the current times when everyone is going for one zero narratives that we need to bring the
#
discussion towards it being about a better balance and one that is based on the conditions and the
#
needs of the economy at a given point of time without disregarding what will be the consequences
#
of the policies you adopt now down the line yeah i'm loving your metaphors in this episode the
#
heart and the arteries bridge in fact i thought you know when you said that you know you had one
#
way of explaining this i thought you're going to talk about dravid's innings in that famous test
#
in headingly where he saw out the new ball and made that phenomenal hundred on day one partly
#
with sanjay bangar and then the next day tendulkar and ganguly made big hundreds and if you just look
#
at the scorecard it's like okay they all made hundreds what's a big deal but dravid sort of
#
weathered the storm and then the other guys thrived though with a bridge i would say that for me where
#
that analogy kind of falls apart is that this particular bridge that you're talking about has
#
so many moving parts and all of them have their own incentives that it's just incredibly complex
#
i guess no no metaphor is perfect you know before we you know get to the book in the you know the
#
the meat of our discussion today a final digressive question which again comes from an aside in your
#
book i think and also something you said a while back where you were talking about your personal
#
journey and you pointed out how countries are sort of placed along this continuum and where a country
#
is on the continuum can often shape how its people think about the world and their worldviews and one
#
sort of you know thought that i've been sort of toying with for a long long time is how institutions
#
can shape a culture in very deep ways like jagdish bhagwati had once um you know i think in the year
#
2000 contrasted china and india and pointed out that look china is profit seeking india is rent
#
seeking there's a rent seeking mentality people don't think of how can i serve the other person
#
and make some profit they think about how can i exploit the person how can i you know exploit
#
the situation and my sense of why that is and you know it's a speculation is that it is partly
#
because of our institutions because of the way our government was set up over the last seven decades
#
since independence that we are essentially a rent seeking society the role of the state
#
for much of this time has been vastly oversized and therefore the incentives for a person would
#
always be that be part of the state be part of that entity that has a monopoly on violence and
#
so much discretion and that's where you'll make the money and you know within the book somewhere
#
again i didn't mark that passage so i don't remember the exact words but you've similarly
#
spoken about how the structures within the financial system can shape the culture and
#
the attitudes of you know the players involved what are your sort of thoughts on this yeah i'm
#
i'm very much a fan of this view both parts of your question one that it is about institutions
#
in the end that the long-term outcomes of the country i'm a bit i think i'm convinced by the
#
research of simoglu robbins and fukuyama and others that you know in the end countries that
#
become like denmark in their quality of living over a period of time and are able to offer that
#
standard of living to its citizenry are countries where institutions such as the rule of law
#
enforcement of contracts the sanctity of the elections etc are in good shape in fact in the
#
eddie schroff memorial lecture i my attempt was to say that even a central bank should actually be
#
viewed as on the same pedestal as all these other institutions in a democracy it's it's an important
#
part of checks and balances just the way we would not want the judiciary or the election commission
#
to be compromised in a democracy we should also not want that you know the the central bank is
#
actually compromised in its decision making just for the short-term populist gains of the ruling
#
day governments invited because that will keep the financial sector policies anchored towards the
#
long-term stability now turning that around why is an institution of a weak regulation or central
#
banking a problem it is a problem exactly for the reasons you mentioned because when the presence of
#
the state is large in the financial sector so there are public sector banks there's tremendous
#
presence in insurance pension non-bank finance etc so you know they are all around then there is a
#
constant tendency to lean on the central bank to make it easier for these entities to survive in
#
spite of their performance there is also a constant pressure on the central bank to change the rules
#
of the game not just central bank i would say even other financial regulators such as securities
#
markets regulator insurance regulator pension regulator so that all of these public sector
#
entities in the financial sector they are essentially all supporting the government's
#
balance sheet to be large allowing their programs to be larger by channeling the savings that are
#
going from depositors insurance premium payers pensioners etc in one way or the other make it
#
cheaper for the government to get its hands on to the savings compared to the private sector
#
now once the private sector is crowded out they have a higher cost of borrowing
#
in general higher cost of capital so they have to economize somewhere else they can't compete
#
that easily because actually they have to generate high returns because their cost of capital is very
#
high so now they start looking for corners in my view this could be one of the reasons why the
#
overall evasion culture builds up in the country because you actually by state being so large you
#
are subjecting them to such high required returns on their investments that they say i have to
#
figure out how to optimize my taxes in a very very massive way in order to generate some return
#
to those who are providing me capital that's one second they know that the state is present
#
everywhere not just in financial sector but even in some non-financial sector very often in countries
#
where government is large it is a reflection of this ideology as we discussed and they also
#
start wanting to have to control decisions rather than making it like a seamless processing of
#
licensing and granting of permissions etc and then you know you end up having to work with the
#
government so to speak you know even the tech sector firms in the country my friends who are
#
entrepreneurs they tell me that they can't arrange physical space for their offices without actually
#
doing some gafla on the side you know with the municipalities or whatever to get the land or get
#
access to the property and so on so and then third because you know that the state wants to be so
#
large you know that there will be frequent interactions and if you can just work with
#
them to get a few decisions your way maybe this could be a very symbiotic relationship
#
for that enterprise and the government not necessarily always to the benefit of the economy
#
and you know you get this sort of hyperactive consultations, lobbying, crony capitalism etc
#
find their root and I am fully with Professor Bhagwati here which is that the biggest
#
corruption of the society because of the strong presence of the state comes because it ultimately
#
shifts the focus away from value creation, entrepreneurship and enterprise to rent-seeking
#
to rent-seeking, tax evasion and essentially you know getting concessions from the government
#
which are out of line. I saw that culture when I was in India I felt that many of our banks,
#
financial firms and industrialists they are spending so much time interacting with the
#
government offices rather than actually focusing on their core businesses thinking hard about their
#
strategies etc that it seemed like a complete waste and this is the going back to the Hayekian
#
Austrian thought of crowding out I think this is a very subtle form of crowding out of the economy's
#
productivity and this is the fear that I have. My fear is that as the state we already have a
#
large state so to speak in terms of its presence in several sectors in terms of its debt to GDP ratio
#
in terms of the fiscal deficit amount that they have to borrow every year to meet their needs of
#
their various expenditures. It's already very large if we don't reverse track we really have to
#
entertain the scenario of lost productivity crowding out of enterprise and you know this
#
will cost us in the long run. So I think as I was saying without having referred to the
#
Austrian economists very directly this is actually a deeper undercurrent of the book and in fact
#
in my India book on government sponsored enterprises in the United States so we were
#
explaining the role played by Fedime and Freddie Mac in the mortgage debacle in the United States
#
I had an India version of the book the book was called Guaranteed to Fail. In the India version I
#
had a chapter on India as to you know what are the lessons for India from the failures of mortgages
#
and Fedime and Freddie Mac in the United States and you know there's a six word proverb in Gujarati
#
you know coming down from centuries I guess which I think has taught me more economics than anything
#
else and it goes as and you know it's such a deep saying whoever wrote this is in my mind
#
one of the greatest economists who have ever existed on the terra firma and it is so deep
#
because there are so many shades to how this becomes true that when the government or the
#
king is trying to be a trader and be in the business itself ultimately you end up with people
#
in poverty and being beggars and there are so many channels through which this arises and it is
#
I have found it so thought-provoking by the way this was also taught to me by my teacher Shailesh
#
Chaser who I mentioned he was the one who told me this of course as a student I had no
#
understanding as to how deep this message is you got some idea you know in Amarchitra Gata there
#
were these kings and you know they were not ruling their citizens very well but it was only when I
#
started doing economics that I realized oh there was such a wealth of wisdom and knowledge in this
#
one proverb and I think that we have to worry about this outcome and in the book I tried to
#
explain this in the preface chapter if I could just finish with that thought which is that
#
you know I refer to this concept of fiscal dominance which is that the government is becoming
#
too overbearing in its control over financial sector policies and it's important to understand
#
why this is shifting over time because I think if you don't understand these shifts over time you
#
will not understand what are the root causes of the problem you will not get the diagnosis right
#
I think the shift is happening because we were first a nationalized country so it was a
#
nationalized country so you know in 70s and 80s it didn't matter if you controlled the financial
#
sector via the government because there was no private sector to speak of for all practical
#
properties then we liberalized because we had no choice we failed as a centralized nation we were
#
at IMF and you know they required us to undergo structural packages so then we you know there was
#
a coincidence of politics and economics we got the right changes through and for about 16 17
#
years we were good with that also the global growth was good and so on now post global financial
#
crisis global growth slowed down and we had already reaped some of the low-hanging fruits
#
of the 90s reforms and now we needed actually a next set and I think this is where we stumbled
#
for the next 10-12 years instead of actually moving the economy towards a more liberalized
#
state more undertaking greater divestments of the governments where it had not yet divested
#
we have adopted I would say a hodgepodge of policies some have tended to liberalize but many
#
have also regressed in terms of increasing the state control there have been attempts to directly
#
control the financial sector outcomes through bank lending decisions attempts to control the
#
central bank policies etc and I think it is because of these growth slowdown the demand in
#
the narrative for the government to start playing a bigger role governments approaching it myopically
#
rather than factoring in the long-run costs of excessive state control that we are now seeing
#
a gradual shift over 10 to 12 years in this direction a part of the book is written because
#
I want us to reconsider whether this shift that we are experiencing away from our liberalization
#
divestment paradigm of 90s back towards centralization and more control of policies
#
and regulations is this really what we want to do we want to go back to the 70s and 80s style
#
india the fear is that we end up with the same levels of rate of growth rather than actually
#
realizing the eight nine percent that our kind of demographics and youth aspirations come on
#
yeah no despite the fact that you sometimes say that there is a bird of optimism within you that's
#
a pretty sort of worrying note you know while you were sort of speaking I remembered an episode I'd
#
done with a friend of mine on restaurant regulations and he was a restaurateur which perfectly
#
illustrates what you said about the role of the state where he pointed out that when he ran a
#
restaurant and he used to run one in bangalore that he realized that there were two conflicting
#
regulations the excise department because they wanted to monitor the alcohol that was going
#
into the restaurant insisted that there be only one entry into the restaurant and the fire
#
department for safety reasons insisted that that there be multiple doors so the poor guy no matter
#
what he does he's breaking the law and he's giving out at least one bribe every month possibly two
#
and and you know other businessmen have told me that they give up to 30 40 bribes a month it's
#
almost like you keep one person just for sort of dealing with bribes and doing all of that and
#
you've got a great illustration of how this kind of thinking can seep into the culture in your book
#
where you know you've pointed out at one point that you you've spoken about the tech industry
#
and the pharma industry and said look at the entrepreneurial spirit and that's because they're
#
relatively lightly regulated but you said as far as a brick and mortar in industries are concerned
#
you used to have a file called Allah ke naam pe de de baba because they would most often be writing
#
asking for you know restructuring bad loans or evergreening bad loans and so on and so forth and
#
and would that be an example of how the culture can shift because then if there are industries
#
which are structurally like that then that will attract a certain kind of person and repel another
#
another kind of person and they're exactly the wrong outcomes absolutely in fact at my farewell
#
speech at the reserve bank of india this is exactly what i said i didn't describe our quest
#
as necessarily one of just restoring financial stability i described the quest as one of trying
#
to convert the india businesses from a rent extraction society towards more of a value
#
creation society which is you know we need to shift the thinking where the way you generate value is
#
not by gold plating and getting your loan gold plated and then over borrowing and then defaulting
#
and then siphoning of the fund somewhere the way you create value is by actually genuinely designing
#
new products setting up thriving enterprises for the long run repaying the loans and the borrowings
#
you have undertaken and yet be creating a lot of value for yourself and for the society as a whole
#
because when you create value you are solving some genuine economic problem on the ground
#
for the citizens and i think we need a very significant shift in this culture it it is a
#
very complex problem because it is partly because of the overarching presence of the state
#
uh both in certain sectors as well as in the financial sector that has prevented actually
#
laying down a set of rules through which risk taking is supported but it is with the right due
#
diligence monitoring and collection skills especially at our public sector banks and to
#
do that why is that because if you want the banks to lend well then it has to be the case that when
#
they don't lend well there have to be consequences because that has got to be the most important
#
disciplining factor on these banks now what has happened with public sector banks is that neither
#
is there any significant penalty for not lending well because there is the support of the state
#
implicitly in one form or the other and the bank regulation has been compromised again and again
#
and again so that the government which is the ultimate principal shareholder also doesn't have
#
to bear immediate consequences of actually chipping in capital into these banks that have not done
#
well now the sum total of all this is that public sector banks have become a quote-unquote vehicle
#
through which the rent extraction by the brick and mortar industries has taken place in the country
#
has taken place in the country now it did not just be at the brick and mortar industry level
#
suppose suppose you keep encouraging public sector banks to lend to micro small and medium
#
sized enterprises or to make the mudra loans but these are not made well then once again the
#
taxpayers as a whole are simply doing a transfer to one segment of the society which is getting
#
freebies without actually having the capacity to repay these loans so i think we are in need
#
of a very fundamental uh reshift of the financial sector regulation so that those who bear the risks
#
are made to pay for them and only if you make them pay for these risks will they actually make the
#
right decision to allocate capital judiciously once capital is being allocated judiciously
#
businesses will have no choice but to actually go and come up with better value propositions
#
and once they have better value propositions we will get more enterprise more thriving investments
#
more employment in these traditional sectors which don't seem to be exactly as you said doing as well
#
as our tech and pharma sector and then and i think it's a great example because see
#
tech and pharma is not that reliant on bank finance they are very heavily reliant either on
#
market finance or actually on just equity investments and you know a lot of it is
#
actually in the form of foreign direct investments from abroad and just look at the number of unicorns
#
we are creating in the tech space it's very very impressive and and you can see the shift when we
#
came out of iit bombay in 95 we didn't have so much entrepreneurship in us because there was nothing
#
happening that much on the ground it was still the beginning of the tech era in india you go
#
to an iit now and you look at the entrepreneurship in the youth they all want to set up their own
#
businesses why because they see that it can be done on ground and you know somehow fortunately
#
at least in the tech space we have not over regulated the space it's managing to do well
#
there is one criticism that it hasn't created as much products of its own but i think now gradually
#
through the sharing economy maybe even that is changing a little bit i think maybe the newer apps
#
which are getting developed in india they are more to serve the local needs of the indians rather
#
than just to be the outsourcing office of the rest of the world so i think that's that's a good
#
contrast we observe between brick and mortar and the tech space and i hope that we can really fix
#
the bank lending in a significant way and that's why dr raghu damraj and i we have actually just
#
released a piece last week indian banks are time to reform where we are actually laying out a full
#
blueprint of also how to improve the lending decisions the monitoring the providing for the
#
risks especially at the public sector banks and how over a period of time to improve their
#
governance and change their ownership structure that's quite insightful and wonderful let's take
#
a quick commercial break and once we come back to it i promise our listeners that we'll get to
#
the meat of the matter which is you know firstly dr acharya's experiences in the reserve bank of
#
india and then the whole notion of fiscal dominance which he calls a theory of everything in india
#
which i found very convincing and couldn't agree more with so after a brief commercial break
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that's right unseen for 15 percent off at indian colors dot com welcome back to the scene in the
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unseen i'm chatting with viral acharya about his time at the rbi and about fiscal dominance
#
which is a concept he explains in great detail and quite beautifully you know very often in
#
my show one of the sort of recurring themes in my show is sort of the shifting relationship
#
between the state and society and i often kind of point out that you know if you look at the
#
incentives of the state it's not the welfare of society it's the welfare of the state itself
#
and that's an interesting dynamic but the state of course is not a monolithic beast there are many
#
moving parts within the state which sort of have different functions and their own kind of
#
relationships with each other and central to the way our economy works our financial system works
#
is the relationship between the government and the central bank so tell me a little bit about
#
what conceptually it should be why it should be that and what are the sort of forces which then
#
create a conflict in that get in the way of that ideal state of being yes so the way i see it is
#
that you know the financial sector as we discussed is the lifeblood of the economy and you basically
#
need a heart to regulate that flow and you know the central bank is sort of that controlling agency
#
it through its various controls essentially controls indirectly the pumping of the
#
the lifeblood to the rest of the economy now you know to give a very simple analogy again
#
you know people say that when your mind and heart start intermingling with each other you get very
#
serious problems in life and this is one way that i think about the the government and the central
#
bank in my analogy which is that in matters of heart sometimes one has to keep the mind a little
#
bit separate and in matters of the mind sometimes one has to keep the heart a little bit outside
#
and why is that desirable that's desirable because in the in the blueprint of the economy
#
so to speak you know the government is actually interestingly is constitutes what the elected
#
officials are they are the ones who should take essentially any decisions that has direct tax
#
implications sort of what one might call as fiscal implications in contrast the central bank is more
#
of a technocratic office and it should ideally not take decisions which are of direct fiscal in
#
nature it should take more these functions which are regulatory in nature now clearly however if
#
if i'm putting the central bank on the same pedestal as the judiciary or the election commission
#
and in my analogy giving it the analogy of being as important as the heart in the body
#
clearly one has to think about you know how it's supposed to function in the design of the economy
#
as a whole so and it's very important it's very central and therefore it has a lot of power so
#
Paul Tucker one of the former central banker from Bank of England he calls this the unelected power
#
that the central bankers have tremendous power but it is the unelected power so how should such
#
technocratic power work in a society and to me the right framework is that its objectives
#
should be spelled out so it should be made very clear what what it is that you are supposed to
#
you are supposed to try and attain its tools should be very well spelled out and i'll give
#
specific examples of each of these and then there should be democratic accountability around the
#
attainment of objectives and the exercise of the tools that were given to it so take a very specific
#
example a central bank is supposed to guard the interests of the deposits in the banking system
#
what are the tools given to it the tools given to it are the supervisory and the regulatory tools
#
and then you know it can be held account by seeing whether the deposit insurance fund
#
is ever running out of funds or not is it able to ensure that the system is able to
#
pay for the safety of the deposits that it's providing the most common one where the greatest
#
amount of transparency is there in the central bank objective is actually the price stability or the
#
inflation targeting framework here a central bank is given a very specific target say around the
#
consumer price index in india it's to maintain it at four percent with a band of plus minus two
#
percent and while paying attention to growth being a caveat in the objective the tool given is the
#
central bank policy rate the rate at which it lends to banks in the overnight markets
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and there's democratic accountability there is a committee that makes this decision the appointments
#
are of course made by the government the committee each member has to give transparent minutes as to
#
why they voted to increase decrease or keep the rates where they were these minutes are published
#
they are scrutinized analyzed and if the central bank fails to maintain inflation within the band
#
of two percent to six percent for three quarters in a row it has to give a testimony to the
#
parliament as to why what factors led to not attaining this objective so to me this is the
#
right way to organize the system which is you give the central bank a very clear mandate you tell what
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are the tools you can allow for discretion but specify that discretion and i think when discretion
#
is exercised the central bank should be required to explain why it is that i had to exercise the
#
discretion what are the exceptional circumstances is my discretion temporary or do i expect it to be
#
there for a while because i've exercised this discretion what are the expected outcomes and
#
what may be the unintended consequences now this i would say is a reasonable democratic
#
accountability process where you give power to unelected representatives or the technocrats
#
but within a certain framework now of course sometimes these frameworks change
#
you know we are constantly learning the needs of the economy are changing the financial sectors
#
technology actually keeps changing the way they are doing intermediation and credit lending keeps
#
changing newer forms of financial firms keep arising earlier it you just used to be traditional
#
banks then you had banks which also started playing in markets and now we have very large
#
non-bank finance companies also but the whole idea to me and i think this is a bit of a
#
a novel nuance into the literature on central banking itself to me an important function of
#
keeping an arm's length between the government and the central bank is so that the short-term
#
pressures that are there on the government during electoral cycles the world over not just in india
#
but the world over there are short-term electoral pressures that those pressures don't compromise
#
the functioning of the heart of the economy you want to keep an arm's length because you want
#
the central bank to be continuously focused on its long-term objectives you have appointed the
#
technocrats to run this job you have given them the tools they can factor in the relative importance
#
of the short-term versus the long-term and if they fail in their mandate they will be held
#
democratically accountable if they have to explain to the parliament why they failed if they're
#
always explaining through reports why these changes work now this kind of an arrangement
#
is important because it will prevent what is called as fiscal dominance and what is fiscal
#
dominance fiscal dominance is when for short-term pressures the governments want to pump crime the
#
economy's growth or because they have borrowed so much they want the central bank to be focused on
#
helping the government roll over its debts at the expense of its long-run objectives so fiscal
#
dominance the reason why it's called dominance is because you are trying to distract the central
#
bank from what is its otherwise understood functions and instead focus too closely on
#
the government's immediate needs and objectives and the idea is that you have to tie your hands
#
in advance because when governments do too much that is in the short-term interest of the economy
#
they leave a massive legacy of problems down the line take the example of subprime lending
#
in the united states it was basically to make up for lack of adequate jobs and stimulus on the
#
ground and you know the system had to witness a massive financial crisis you know over time
#
government foray into subprime lending combined with private sectors foray into subprime lending
#
and you know it became a perfect storm at some point look at the fiscal stimulus in india of
#
2009 to 12 you know we have still not cleaned up the mess many of our defaulted borrowers from
#
that time are still not fully resolved bank losses are still not 100% fully recognized
#
and you know time doesn't wait for you new shocks come and start hitting the economy so the idea of
#
keeping the central bank separate from the government is that you allow the central bank
#
with all this democratic accountability framework to be run by technocrats who can remain at arms
#
length and constantly focus on the long term and so it's basically the government trying to do
#
as the elected representatives of the citizens what they think is is the right but you recognize
#
ahead of time that they will be subject to short-term pressures especially around the
#
electoral cycles and you don't want the entire engine to fail down the line because you pay too
#
much attention to this short-term pressures and so you have to strike this balance in the independence
#
or the operational autonomy of the central bank and an important point to make here is that
#
the reserve bank of india is an all-purpose central bank and this is one important point i want to
#
convey it's safeguarding deposits because it runs the deposit insurance fund it is the debt manager
#
for the government so it places government's debt it controls the regulations of the debt markets
#
and the currency markets it's supposed to manage the external sector so safeguard against sharp
#
volatility or depreciations in the value of the rupee it is in charge of the interest rate setting
#
process so it affects the cost of borrowing in the economy and it also controls the liquidity
#
framework in the sense of you know how much reserves are being made available in the country
#
to banks in order to you know help them manage transfers of liquidity in the system now with all
#
these functions concentrated and contrast this with say united states where say the deposit
#
insurance is with the federal deposit insurance corporation supervision is partly with the federal
#
reserve but it's partly with occ the office of controller of currency and so on with so many
#
functions in one institution and with the simultaneous presence of public sector banks
#
the government controlled insurance companies pension funds power finance companies etc
#
the scope of fiscal dominance in india is very large it can permeate almost all policies of the
#
financial sector very quickly if the central bank is essentially compromised and a part of the
#
explanation in the pre-phase chapter and i'm of course partly exaggerating when i call it a
#
theory of everything in india but my sense is it's only a slight exaggeration as far as the
#
financial sector is concerned because i give this six examples one after the other of the pressure
#
points of how many pressure points kept coming up as i witnessed during my term of the center trying
#
to influence the policies of the central bank without it being clearly laid out through public
#
discussion public reports research facts data as to whether this is in the long-run interest of the
#
economy and you know it can get done through backdoor compromises it can get done through
#
what i call as phone central banking it can be done through choice of the specific board members
#
who are being appointed on the board of the central bank and essentially if the central bank is not
#
functioning with a rule-based decision-making system where any exceptions are very transparently
#
explained through reports as to why we are engaging in this exception what is the sunset
#
clause when will it end what are the intended consequences unintended consequences it becomes
#
too easy to start these compromises you know no one wants to have a confrontation every other day
#
with the government and so you start hoping that oh if you make this one or two compromises maybe
#
things will subside you know you can call it politicking whatever you want to call it but at
#
the end of the day it is an erosion of the operational autonomy and independence of the
#
central bank and what is misunderstood in my view by the central bankers when fiscal dominance is
#
very strong because the government balance sheet is very large it's experiencing debt problems on
#
a regular basis in terms of costs of borrowing in the markets its banks public sector banks are not
#
in great shape etc is that when the dominance becomes so strong whatever you compromise today
#
is the beginning of a new compromise tomorrow it's not a ceasefire because the underlying problem
#
as long as the underlying problem doesn't go away they're going to wake up with that problem
#
every other day and then try to put pressure on the central bank to accommodate why because if
#
the central bank accommodates these long-run objectives can be kicked down the road and you
#
get like the short-term adjustments that the government needs now two points are important
#
here sometimes it is seen that this is primarily a criticism about the government and that's not
#
that's not what it's meant to be fiscal dominance comes about because the institutional
#
underpinning of the central banking is weak the way it goes about its decision-making rules
#
is somewhat weak now both parties are in a way responsible for it of course the letter of the
#
law is with the government as to what institutional independence is given to the central bank
#
by the acts and as Dr Reddy explains in his masterful forward in my book RBI has one of
#
the weakest acts governing it in terms of the operational autonomy but the second point is that
#
there is a difference between the Dajor and the de facto what is in the letter of the law and what
#
is in effect what comes about in effect is also partly a function of how central bank goes about
#
its own decision-making and in my view if the central bank uses rule-based decision-making
#
pushes for rule-based decision-making inflation targeting framework didn't come about by itself
#
the central bank governors governor Rajan and governor Patel had to push for it for this to
#
happen of course governor Patel was a deputy governor at that point of time then the framework
#
was adopted so they have to push for this they have to be willing to speak truth to the power
#
because you have to shift the debate towards the long run of the economy when electoral
#
pressures are pushing them otherwise they have to be willing to say no to certain outcomes they have
#
to be willing to communicate and have a public engagement about these issues along the line
#
because you have to shift the public opinion and not just the opinion of the political system or of
#
the system the financial system around the central bank and finally it requires unfortunately
#
playing the game of chicken sometimes you have to not give in to the first compromise pressure
#
that gets put on you so i give the example of paul walker the late governor of the federal reserve
#
where you know once the reagan administration came to power they had a very expansionary manifesto
#
they wanted to cut taxes and turbocharge the economy that way and paul walker had just arrested
#
double-digit inflation he said i can't do this i won't be able to keep the rates low simply to
#
fund your fiscal stimulus because the long end of the yield curve is already rising and telling you
#
that this is going to be inflationary and i have just arrested inflation he had private meetings
#
backdoor compromises were sought now he has openly disclosed that and he didn't give in at all
#
and you know he won the day because president reagan in the end didn't adopt as expansionary
#
a manifesto the yield curve actually didn't get worse in terms of the long-term costs of borrowing
#
for the u.s government and inflation was actually kept at bay so it requires a certain amount of
#
obduracy and doggedness now of course at times the fiscal dominance pressures can be so high
#
that the central bankers may be left with no choice and and you know then you have to here
#
to see what to do about that so i have a broader sort of two-part question here and they both arise
#
from what you have just described this complex relationship and one part is philosophical and
#
the other part is practical now you know we often speak about the rules of the game but it strikes
#
me that what we have here is really two games not one one of course you've in the past made uh you
#
know you've used test cricket as a metaphor that the central bank should be like a test cricketer
#
you're looking at uh the long term and the way it strikes me is that the game of governance not
#
just central banking the game of good governance or keeping a nation going is a long-term game
#
where policies take a long long time to play out you have to think of the long term but the
#
game of politics is like t20 cricket it's a short-term game where politicians constantly
#
have the imperative of the next election upon them and you know even when a general election
#
is just over it doesn't mean the next election is five years away because there are state elections
#
all the time so you're constantly sort of in campaigning mode and there is a conflict between
#
these two and some could even say it's a conflict between a democracy and a republic that when we
#
talk about a country being a democratic republic is it really one thing uh you know and and that's
#
a fundamental conflict now at a philosophical level here is where the issue is i don't see how
#
you square the circle because the argument that politicians will often make is an argument of
#
legitimacy where they will say that listen we are a democracy we've gotten like we've got the
#
popular mandate we are legitimate why should we listen to unelected unaccountable elites they
#
should do what we tell them now that becomes you know one argument whereas you know whatever you
#
may say or i may say or even you may say as somebody in the reserve bank it could just be
#
what is your legitimacy you're not elected so i think at a philosophical level that is a circle
#
that needs to be squared and at a practical level it then strikes me that isn't the erosion of
#
institutions over the long run always inevitable because of you know what we've seen the pattern
#
of populism not just in modern times with uh you know people like Erdogan and uh Modi and Urban
#
and so on but the the pattern of populace throughout history is to rail against unelected
#
elites and destroy institutions and given that even if for a long time you might have an equilibrium
#
where there is a certain respectful relationship between a central bank and a government
#
you know isn't erosion inevitable aren't the incentives of politics uh towards uh sort of
#
ensuring that kind of erosion because then you know the less powerful the institutions get the
#
more powerful the government of the day is and you know an example of that could simply be that
#
look they control the appointments now it's an to me it almost seems remarkable that you know
#
people like Dr Rajan and Dr Patel and you happened to work in the central bank and took the stands
#
you did but i don't see why that should not be an outlier it's so easy for a government just to put
#
its i mean i'm not making a comment on the current incumbent but it's so easy for a government to
#
just put its own people in any institution not necessarily just the RBI alone and therefore
#
degraded and this is something like at a philosophical level of course i'm looking
#
forward to your answer but even at a practical level you've been in the thick of things you've
#
actually grappled with it tell me a little bit about your experience you know in that process
#
yeah it's a it's a it's a complex question with with many shades so let me try and see if i can
#
do justice to it by breaking it up into certain parts i would say so firstly i agree that uh see
#
at the end of the day they control the appointment the government controls the appointments and to
#
me that's why i think once they have made the appointments and then the framework is in place
#
they have to let go at that point because you know the system is already giving you the rights
#
to appoint the people and so you know you can factor in whatever considerations you have
#
and that's what i feel that when your own elected officials are resisting
#
the pressures being imposed on them it's more likely that it's actually because you are trying
#
to do something that's more in the short-term interests for your electoral cycle outcomes
#
rather than in the long-run interest of the economy second see once a reasonable person
#
has been put into these positions such as say being the governor of a central bank they will
#
feel a mental responsibility to stick to the letter of the law what is constitutionally
#
and through the rbi acts etc being required for them to perform as their functions the system
#
has been run very very well by people of very very high integrity and i think it's in the dna
#
and the culture of the central bank thankfully that you know a lot of attention is paid to what
#
the institution is required to do as its mandate and that could very easily mean that even the
#
people appointed by the same government will actually disagree with the government and i think
#
there should be healthy space for these kinds of disagreements because the idea that only the
#
elected officials can take the right decisions for the country without necessarily a feedback
#
from the rest of the system is i think it can't be right you know as i said in a country of
#
billion people the bright ideas for individual problems are likely to be distributed rather
#
than just in the minds of a few individuals and so you need that feedback to the system of you know
#
and it happens through a bit of back and forth sometimes it means some resistance some speaking
#
of truth to the power some nose and playing a little bit of game of chicken as i was calling
#
it etc and and the third point is that coming to very specific to the rbi itself see the
#
why is the rbi act in part weak it's weak because there is this exception called the section seven
#
of the rbi act which got a lot of attention during our term it had never been invoked
#
in the history of the reserve bank of india it was what does that section seven clause do
#
it allows the government to basically give effectively a direction to the governor of
#
the rbi it says in consultation with the governor but of course you know that just means that there
#
has been some back and forth and yet they weren't able to resolve the problem and it says it's in
#
public when it's in public interest now clearly therefore the rbi act is very clear it says if
#
the government wants the governor to do something as an executive they have the powers to do it
#
but my point is that it says very clearly that it's in public interest so if if such a direction
#
is to be given it should be made first transparent to the public as to what exactly are these points
#
of disagreement what are the government's points what is the reserve bank of india's points what
#
are the pros and cons of taking a decision as the government wants or not taking the decision as the
#
rbi is pushing for etc and at a simple level that is why that is the point of the eddie schroff
#
memorial speech we were still in office when this happened but we had to give the speech because
#
if we had to take certain decisions we had to actually we thought that given section seven
#
clause was to be invoked in public interest it has to be made transparent to the public at large as
#
to what are some of the key points of contention what are the areas of disagreement etc etc and i
#
think as i say in the chapter there are pressure points were all through there were tremendous
#
interest in getting us to open up the credit and liquidity taps in 2018 just the way it was at the
#
time of fiscal stimulus after the global financial crisis we all know what was the year 2018 you know
#
there were clear short term electoral pressures building up at that point of time and you know
#
in a way we had to resist those pressures because we had just started the process of cleaning up
#
the financial sector a few years back the job wasn't complete we knew how difficult it is to
#
clean up an excess credit cycle after it has happened the way we saw it in 2009 to 12 so it
#
all being in front of your eyes i don't see how the central bank would have just tagged along
#
just because the government wanted it to be and in fact as i describe in the book in the first 10
#
to 12 months of my term we were completely in sync with the government on cleaning up this process
#
and then there was a bit of a reversal and i think all of this circumstantial evidence if i could
#
call it seems to suggest that the driving forces were actually the short term political pressure
#
there was also a tremendous demand to get a huge balance sheet dividend to be paid to the government
#
out of the central bank you know the numbers that started out were extraordinarily large and then
#
they came down eventually so i think i agree with you that there is a natural tug of war
#
here all over the world governments are always wanting sometimes the central banks to do what
#
is in their short-term interests keep borrowing cost low keep a lot of liquidity high keep bank
#
credit conditions easy etc etc but given i think our initial conditions are such where the government
#
deficits are large there's a big government presence in public sector banking and the rbi act
#
is weak to start with in granting the central bank operational autonomy it is my experience
#
that the fiscal dominance pressures in india now are way higher than in other parts of the world
#
and you know there is there's always a tendency in india to justify our own mediocrity and bad
#
decision making by appealing to the rest of the world i wrote about fiscal dominance i wrote the
#
entire book my manuscript was given before the covid outbreak had become significant it was it
#
was all finished in february early march and immediately people in india said oh but you know
#
the world over now the governments and the central banks are working together to come out of my
#
question is no they are doing it to come out of covid we started this process even before two or
#
three years before of fiscally dominating the central bank and you can see the damage that
#
it has done in my view the long-run test match view is really playing out see what is the cost
#
of dominating the central bank to roll over your debts you know not recapitalize the public sector
#
banks etc is that the market discipline on the government is lost on its balance sheet
#
you know the government has effectively run a consolidated deficit of eight to ten percent
#
of gdp pre-covid depending on how you do the consolidation you know post-covid it will go up
#
to 14 to 15 percent the fact that we didn't bring our fiscal deficit in check before covid has meant
#
that it has been hard to undertake fiscal expenditures right now in the midst of covid
#
that's a serious cost to the economy in my view that you chose to spend so much in good times
#
rather than saving a capacity to spend if you had a difficult situation such as the pandemic
#
of course no one knows but that's what robustness resilience and stress test planning is you don't
#
exhaust all your buffers in what are looking relatively calm years second the public sector
#
banks problem has not been fixed neither in terms of capitalization nor in terms of governance and
#
quality of lending underwriting monitoring etc nor in terms of the government shedding stakes
#
now the losses during covid are likely to rise perhaps to you know 12 and a half to 14.7 percent
#
as per rbi's financial stability report now we are going to be dealing with a further loan
#
loss problem even before we have fixed the old one so this kicking the can down the road
#
and justifying always doing what is in short-term interest at the expense of positioning the economy
#
structurally right for the long run and we do this year after year after year with more intensity in
#
some years such as 2018 than others and this tendency of not positioning yourself structurally
#
right for the long run leads to this tendency to put dominance pressure on the central bank
#
every year to get some concessions and you know in the end we are gradually in my opinion losing
#
our potential productive potential to grow our productivity our ability to create jobs all these
#
are steadily deteriorating and of course there is bigger collateral damage as you pointed out which
#
is the fact that you are emaciating the decision making processes which in effect granted the
#
central bank a fair amount of operational autonomy even when the letter of the law was not that
#
was not that great and i think i want to stress one point here which is quite important i mean
#
again to quote dr reddy from his masterful forward in my book he says listen in 70s and 80s the
#
government the central bank and the public sector banks were a hindu undivided family where no one
#
kept anyone's accounts and it didn't matter that time there was no private sector to talk of and
#
we were generating three three and a half percent we had never embraced the ability and the opportunity
#
to actually grow faster than that even that failed we could not even generate three three and a half
#
percent without running up imbalances on the external sector now the economy is different
#
the economy has a presence of the private sector the growth aspirations are of eight to nine
#
percent per annum they are in fact necessary given our young demographics and if we want to
#
continue on the path of eradicating poverty the way we have for two decades since 1991
#
uh then it's not good enough to function like a hindu undivided family anymore where no one keeps
#
anyone's proper accounts because if the government becomes very large now the cost is not just that
#
down the line you will have a crisis the cost is even now because you are crowding out the private
#
sector you are crowding out its enterprise you are converting businesses from value creating
#
enterprises into rent seeking enterprises and so i think the danger of going down this path
#
of regression towards nationalized economy a centralized control of decision making and
#
policy making the danger is clear and present right now and therefore i think we need deep
#
institutional reforms on the fiscal side on the financial sector side and also on the real side
#
to actually turbocharge the economy so that we get all the growth we can possibly generate
#
in the post-covid and amidst covid recovery and you know one of the key nuances which you pointed
#
out in you know the preface of your book which is just an absolutely wonderful chapter one of the
#
key nuances that i'd like to draw my listeners attention to is the fiscal philosophy of our
#
state by which you don't mean this government or that government but how the state has looked at
#
spending all throughout where you point out that a significant chunk of our spending is revenue
#
expenditures like subsidies and so on and a very small chunk is capital expenditure which is things
#
like infrastructure and so on which will you know have positive externalities lead to growth in the
#
long run so what's happening is that instead of building the pie instead of doing things which
#
will you know help the economy grow we are redistributing bits of the pie and that
#
redistribution that economic support and all of that also play into those short-term populist
#
imperatives so here again incentives take you towards a particular kind of spending and you've
#
pointed out that how you know when you combine the problem of the fiscal deficit with how the
#
current account deficit has been changing you say and i'll quote this bit these twin deficits
#
fiscal deficit and current account deficit make india vulnerable to a sudden stop in which a
#
deterioration in the quality of government or corporate balance sheets rising inflation either
#
due to domestic stimulus or oil price shock federal reserve rate hikes and dollar absorption
#
or a surge in global risk aversion can trigger a withdrawal by foreign investors who have financed
#
the external funding of the government in the corporate sector the resulting fallout in the
#
form of a sharply depreciating indian rupee a rise in oil import bill and inflation further widening
#
of the twin deficits and the debt spiral or loss of investor confidence that ensures present a
#
substantial risk to india's financial stability such risk has materialized unexpectedly at least
#
once a decade over the past 30 years with several minor pickups in between and you point out that
#
the way to address this would be to make tough structural adjustments but instead what we do is
#
to quote you again we instead do quote what is more expedient which is to economically and
#
financially repress the economy to fund its borrowings stop quote and this phrase was very
#
interesting to me you know repress the economy so take me through some of the ways in which this
#
happens and what the implications are and all of this of course is sort of an elaboration of
#
fiscal dominance which is what you know that the chapter and the book is about so
#
tell me a little bit of the different shades of meaning of you know repressing the economy in
#
this case absolutely i mean so you know the historically the most common repression used
#
to be that essentially the government and the rbi sat down together and said that we will impose a
#
very high statutory liquidity ratio as it was called slr on banks at its peak it was around
#
40 percent and what does that mean it means that when you or i deposited one rupee into a bank 40
#
paisa would would necessarily have to be earmarked for holdings of government bonds now what is this
#
doing what this kind of repression does is that it forces an increase in the borrowing costs for
#
everyone else because you can't compete with the government on a level playing field for about 40
#
percent of the deposit base of the banking system now why is the government doing this the government
#
is doing this because it wants to keep running its populist programs as we as you mentioned
#
you know more than 90 percent of centers expenditure is in subsidies rather than infrastructure or
#
health and similarly at state level maybe 70 to 75 percent is almost subsidies and other kinds of
#
revenue expenditures you know salaries pensions whatever because you know they are owning so many
#
things all over the country and employing relatively unproductive labor in my view in cases
#
so the cost of actually supporting that employment providing all these subsidies is the fact that
#
when a private sector firm wants to borrow a micro small medium-sized enterprise wants to borrow or
#
you and i want to borrow say in order to invest in a house or you know buy a car or fund an education
#
loan for our child we are actually paying the higher cost because the government has to keep
#
running its program so this is the this is a form of a borrowing related repression tax now second
#
when now we have brought down you know various governors brought down this statutory liquidity
#
ratio down from 40 to below 20 so you know that repression has come down but now what what that
#
what that means is that because of lack of repression the government has to borrow in the
#
market now what was the idea why should they borrow in the market because rather than forcing
#
banks let them borrow in the market because then the market will reflect in the price of the
#
government debt what do they see as the long-run prospects of the economy from the debt that you
#
are undertaking will the inflation rise are you going to generate enough growth to generate taxes
#
to repay these debts or not now then the government costs of borrowing rises again what do they do
#
they turn to the central bank and say oh now you must buy my debt because otherwise the borrowing
#
costs are rising even the pressures on the central bank to quote unquote monetize the government debt
#
they have been there even pre-covid these are in fact i described that you know what does opening
#
of the liquidity taps mean part of it was actually to just go and buy a lot of government debt to
#
open market operations so that you would flood the banking system with more liquidity but of course
#
part of that is to simply keep the government's borrowing costs low now what you do when you
#
monetize the government deficit is that one you prevent the financial sector from taking on the
#
government bond risk and earning a higher yield on it instead you give them a very low overnight
#
rate through the central bank and more importantly you also reduce the fiscal discipline on the
#
government so the government balance sheet keeps getting larger and larger aggravating the first
#
crowding out problem that i was discussing and now if the financial sector is not making much
#
profit on its holding of government the deficits in one way or the other because the central bank is
#
monetizing it then you know you sort of reduce their profitability to an extent in the process
#
as well and third and maybe a worse form of repression is the fact that because RBI is an
#
all-purpose central bank the government also wants to reduce its recapitalization amounts into public
#
sector banks and other government-owned entities to do that it asks RBI to relax the rules for
#
recognition of loan losses not require that you provide for anticipated losses ahead of time
#
and because you don't do that the banking system is always like a tight rubber band
#
that is stretched so hard that even a little bit of disturbance might actually run the risk
#
of snapping it the bankers feel the pressure themselves because they have never recognized
#
what their loan losses are in a true economic sense so they're always dealing with legacy
#
problems and you get two kinds of problems in bank behavior out of this one banks are now very
#
fearful of any further losses so they want to keep evergreening and keep lending to the same
#
borrowers who have already defaulted so this is called a zombie lending you extend and pretend as
#
though everything is fine on the loans or they do lazy lending which is that they they lend entirely
#
to the government because that by regulation doesn't require any extra capital to be brought
#
by the shareholders so that's called lazy lending now therefore what you observe with public sector
#
banks is that many times they are so much in excess of this statutory liquidity ratio they would have
#
if the statutory liquidity ratio is 18 percent they will have 25 to 27 percent of government bond
#
holding effectively that's again a repression because they have no capital so they are going
#
to lend to an msme or a private sector borrower or a household only if they get a lot more extra
#
return to compensate them for not having to provide capital on these other kinds of holdings that they
#
have so in one way or the other the repression is a repression of the saver because in the end
#
you know the quality of deposit services etc being provided by public sector banks is not great
#
if rbi is being forced to keep interest rates low then deposit rates will eventually follow and the
#
saver again gets low low returns on deposits it's a repression of the borrowers in the private sector
#
because they are going to have to pay higher costs to borrow so they have higher hurdle rates
#
many investments don't look profitable or as we have been discussing they switch from a value
#
creation to a rent extraction mode in order to generate these higher returns given their higher
#
cost of capital and third and importantly there is also a repression of the overall allocation
#
of capital in the economy instead of taxpayer money going to the government and the government
#
being under fiscal discipline to allocate this capital well to generate growth to do the right
#
kinds of investments such as infrastructure health and education which will expand the growth path of
#
the economy and build a credibility with the market that yes the government can repay even
#
a higher cost of borrowing instead the taxpayer money gets allocated into short-term revenue
#
programs of the government that have a lot of populist appeal they are an easy narrative to
#
provide to the common man without ever spelling out what are the true economic costs of actually
#
running these programs in the long run and so i think it's a it's such a massive repression of
#
the economy all around so to me it is not a surprise at all that investments in many parts of
#
of indian real economy are very tepid because when you have a government that is trying to
#
do so much in the short-term pump priming of the economy short-term subsidy based
#
narrative friendly programs and so much to repress the financial sector policies to facilitate its
#
own borrowing where is the space for the rest of the economy to grow it's simply not possible the
#
only entities that are able to grow well in india are those who are able to go outside the country
#
and borrow in the external markets or get foreign direct investments and those parts of the economy
#
thrive and of course what are these in the fdi case it is mainly the tech and pharma space and
#
in case of external borrowings it has to be relatively large and well rated companies but
#
that leaves out a large chunk of enterprises which are small who contribute very valuably to job
#
creation in the economy and you can see actually that over a period of time gradually the average
#
young person in india is now saying that the job they want is actually with a public sector firm
#
they are no longer thinking about the job that they want is being with a private sector firm
#
because we have gradually reshaped the economy to have more and more of the government and less and
#
less of the private sector and i think this is a fundamental misdirected course from which we have
#
to correct our direction and strike the right balance again and i think if i could essentially
#
give one final example here which is that you know what is often lost in the political thinking
#
of the economic management of the country is that a small share of taxes of a larger pie
#
may be much bigger than having a larger tax percentage of a very small pie and you know
#
basically what it's saying is that there's a simple concept in economics that if you tax too much
#
at some point the private investments collapse so quickly that actually the economy shrinks and even
#
though your percentage tax rate is high actually you don't collect much tax revenue in the first
#
place and so beyond the point your desire to collect more and more taxes backfires now i'm
#
not saying that we don't need to improve our tax collection in a very fundamental sense what i'm
#
trying to say is that repression of the economy through public sector banks through fiscal dominance
#
of the central bank through excessive borrowings and crowding out of private sector enterprise all
#
of these are forms of taxes implicit taxes that are being imposed on the rest of the economy
#
and in some total they are now so large that the pie is actually shrinking and even though the
#
repression is very high in the end the government is worse off because actually the pie is shrinking
#
at a faster pace than you are benefiting from the pie in the first place i think you know the reason
#
many people miss this profound insight is that the whole idea that a pie grows or can shrink
#
feels counterintuitive in the sense that you know our brains evolved at a time where you know in
#
prehistoric times we lived in tribes of you know up to 100 to 150 people there was natural scarcity
#
all around so we've evolved to think of the world in zero sum ways the fact that you know every
#
transaction leaves both parties better off and the value in a society goes up and the pie can grow
#
is deeply counterintuitive another sort of aspect in your book which you know i was reminded of
#
earlier on the show when you spoke about the proverb where if the raja is a vaipari the raja
#
becomes bhikari was you know again what the ownership of public sector banks does as a whole
#
where the government is not only a participant through the banks but also the regulator of the
#
banks and the perverse incentives in play and again i'll quote from your book where you write
#
on the one hand the overarching presence of public sector banks other large state-owned
#
financial institutions and state-owned enterprises creates the incentive that the government dominates
#
the central bank and his financial sector policies to affect outcomes for the entities it owns and
#
for his borrowing programs this skews the market terms against the private sector and distracts
#
the central bank from his long-term policy goals stop quote and this also affects the private
#
players then as you later point out quote the government has incentives to influence policies
#
as such and that it is not at arm's length from the regulators drives the private sector into
#
hyperactive lobbying read and overdose of consultations with the government and regulators
#
this in turn induces an overall culture in the system of putting in place business-friendly
#
policies that are pro-incumbents at the cost of market-friendly policies that encourage creative
#
destruction asset reallocation ease of doing business and new entry a stop quote which i think
#
you know wasn't and i wanted to read this out and it's an important point to make because
#
in the popular imagination most people conflate business-friendly and market-friendly the two are
#
often contradictory because what is business-friendly is if you keep competition out and that's not
#
necessarily good for the people at large or for society that's crony capitalism and and what is
#
good for the market is that you have this dynamism that leads to creative destruction easy entry and
#
all that but the way the system is set up and and a lot of it has to do with you know the ownership
#
of public sector banks you know it seems inevitable almost destined to just play out this way what are
#
sort of your thoughts on this and how difficult is it to eventually move away from it like you pointed
#
out in an interview that look it is possible for public sector banks to get sold it happened all
#
over southeast asia but it took a massive crisis for it to happen now we can't hope for a crisis
#
there doesn't seem to be much coming from the demand side of the political marketplace
#
so uh you know are things bleak for you unless they get really bleak and we have a crisis
#
yes see in the end we have to recognize the costs of running the system the way it is i think see
#
the reason why a part of the narrative hasn't shifted around to reforming the public sector
#
banking you know most people don't even realize that these banks were nationalized most of them
#
in 60s and 70s in two waves they used to be private banks earlier it was done under the
#
political objective of running governments programs for development and financial inclusion
#
and low and behold after close to 50 years of their existence we are still at barely 60 percent of
#
credit to gdp ratio much lower than developed countries where are their losses are they in
#
financial inclusion loans no they are in loans to the largest industrial firms that is where
#
their biggest losses have come from so they have failed on that front in fact increasingly their
#
quality of deposit service and account and branch services is so weak that even their deposit
#
share is actually shrinking so depositors are now voting with their feet gradually by saying listen
#
i would rather bank with a well-capitalized good service providing better technology run
#
a private bank than with public sector banks so i think my sense is this is this has been a disaster
#
in the making for a while the public sector banking enterprise uh we we quote in the paper
#
with dr rajan that you have injected more than four trillion rupees of capital over the last 10
#
years and the opportunity cost of that because you could have invested this capital in the market
#
index or in a in a private sector banking index as two comparisons would be anything in the range
#
of three to three and a half lakh crore this is 100 billion dollars if we had that available with
#
us you know we could have done such a more significant stimulus for relief and repair
#
of the covid affected economy now why is the narrative not shifting the narrative is not
#
shifting partly because this public sector enterprises have become cozy jobs for a part
#
of the middle class in india you know you get these secure jobs they are not as well playing
#
as well paying as in the private sector but you have the job security because these entities
#
aren't going away but now the costs of actually keeping them in good shape have become so high
#
because the government balance sheets have expanded on other fronts and the losses they've made are
#
very large that actually it's not at all clear that these entities can even grow and provide the kind
#
of security that was possible to provide earlier you know take the example of air india or take
#
the example of the public sector banks that are losing their market share of deposits uh you know
#
it's not going to be that pleasant to be employed uh in these firms going forward so i think the
#
labor itself has to recognize that they would have more interest in growth potential even if some more
#
risk on the job if some of these entities were in fact better governed at arm's length from the
#
government and eventually reprioritized the second problem that always gets mentioned is oh you know
#
ultimately when a crisis happens you have to backstop the banks anyways then what is the
#
then what is the problem with public sector banks and it's a it's a clever argument but it's wrong
#
on many counts and let me explain three counts first yes deposit insurance is in place all over
#
the world but the reason why it's not a blanket deposit insurance is because there are capacities
#
to how much the government can provide insurance the sovereign can go on the brink if it takes on
#
too much private liabilities of the system therefore there's a line drawn on how much
#
deposit insurance will get provided and that deposit insurance is provided even to private
#
banks so why do you have to suffer all the inefficiencies misgovernance behest lending
#
you know lack of adequate technology etc of a public sector banking system that has quote
#
unquote as i said failed us for 50 years in attainment of what it was supposed to be so
#
you know you can strengthen your deposit insurance system rather than actually having to suffer all
#
the consequences of government ownership second by keeping them as public sector banks as i explain
#
in the chapter you actually through fiscal dominance keep the quality of the regulation
#
weak at all times and this also means weaker rules on private sector banks we did not adopt
#
better accounting standards such as the ifrs or indias which would require provisioning for losses
#
in anticipation and now even our private banks are actually not providing as much in anticipation
#
as we would like so there is a common reduced denominator or a race to the bottom in the
#
regulation of the financial system because you have weekly managed weekly governed weekly
#
capitalized public sector banks in the system so the entire system is made worse off because
#
of their presence in my view and third and most importantly is about the efficiency of the
#
allocation of capital in the economy as i explained earlier because of the presence of public sector
#
banks capital is getting inefficiently allocated either to distressed borrowers in order to first
#
gold plate them in good times and then allow them to continue to borrow through as zombies in bad
#
time so you get zombie lending or you get lending to the government lazy lending and the middle
#
which is the healthy firms msmes and the households they are getting creamed out because
#
they have to borrow at much higher cost of borrowing now this has implications on productivity
#
investments high quality jobs being created in the economy and ultimately even though as a saver
#
in a public sector bank or as an employee in a public sector bank in the narrow i may feel
#
good about their presence the entire economy is paying a huge cost for this and i tell everyone
#
who defends the public sector banking enterprise on basis of the safety of the deposit or on the
#
basis of the job that it has created for them i asked them if you had a child where would you
#
want your child to work when he grows up and you know in many cases the answer would be that they
#
would rather have the child be working in the best private bank out there rather than in an air india
#
or in a public sector bank out there so i think my sense is that this has come at a colossal cost
#
to the economy even those who are inside are a bit blinded by the fact that they are leaving
#
behind a much worse economy for the youth and the children including their own even though privately
#
some of them might be better of themselves with the presence of these enterprises i think it's
#
time to call it a day i think the sooner we stop bleeding this wound the better it is in my feb
#
2017 speech on npas i gave this analogy that we keep festering this wound more and more and now
#
we run the risk that we may have to not just impute some organs but also you know we may have to deal
#
with the side effects of the wound spreading to other parts of the body i think it's time to
#
recognize this is a failed experiment it was entirely political when it was undertaken as
#
nationalization in 60s and 70s it has led to poor returns on taxpayer money it has led to
#
poor quality of deposit franchise servicing it has led to peak the central banking apparatus
#
in supervision and regulation it's it's a form of cancer in my opinion it is i have no two
#
views about it in spite of the resistance that has been provided in many parts of the society
#
because you have to listen to the facts on the table and now a multiplicity of books have been
#
written explaining how bad it is two have come out this year another one is coming out later this
#
year this is a common theme that's running through my book and my paper on how to reform the banks
#
with dr rajan that government has to divest stakes it has to improve the governance reprivatize some
#
of these entities and prioritize some of the business models of the smaller ones so that
#
they just do financial inclusion like microcredit or microfinance institutions rather than trying
#
to be universal banks to the industrial firms of the country in fact i couldn't agree with you more
#
about bank nationalization in fact i often and this is something i feel strongly about most people
#
i don't think understand that economic policy has real humanitarian consequences like when i look
#
back on many of the economic policies of the indira gandhi period bank nationalizations and
#
so much else you know i think they kept millions of people in poverty for decades longer than
#
necessary which is of course an unseen effect and people don't get it and what you're saying about
#
this also holds true that not only are we kicking the can down the road we are kicking the children
#
down the road this is going to affect uh you know future generations yeah if i could just add one
#
point there i mean see this is the this is the beauty and the sadness of the government balance
#
sheet right what is the beauty the beauty is that you can touch the individual and spread the cost
#
across what is the the tragedy of it the tragedy of it is that because you are spreading the losses
#
around you know no one really cares about it it's someone else's problem and therefore i think
#
proper accounting of government balance sheet preventing off balance sheet accounting from
#
masking the true picture of the government balance sheet having an independent fiscal council that
#
will evaluate every single program of the government before the budget is announced
#
you know the the 14 finance commission chaired by dr reddy made this very clear that the independent
#
fiscal council should vet the programs before the budget is announced are the assumptions reasonable
#
what are going to be the recurring costs of these programs we can't just announce programs and then
#
figure out what are going to be the budgetary and financing implications of this and once you
#
do this once you do a proper accounting of what is the total borrowing being undertaken by the
#
government across centers states different center and state-owned enterprises this is called as a
#
public sector borrowing requirement once you have a council that's vetting the reasonableness of the
#
government budgets it'll become very clear that the government is trying to do too much it is
#
pushing on a string the borrowing costs and borrowing amounts are very large and that we
#
need to embark on a massive disinvestment program the way we had it during 98 to 2003 in all non
#
strategic sectors the government needs to shed stakes reprivatize wherever possible including
#
in the financial sector in the banking sector the insurance sector and so on i couldn't agree more
#
and and in your book of course you lay out a bunch of ways in which you know we can fix the system
#
now assuming and we'll come to the political economy later but ignoring the political economy
#
for the moment assuming that all the politicians and bureaucrats fall in line what are the sort of
#
steps among what you haven't already mentioned what are the sort of steps that should be done
#
to fix the system to get it functional again uh yes so i think i would say you know in my view
#
the fiscal stability and financial stability are now almost joined at the hips uh you know they are
#
very deeply intertwined through this fiscal dominance channel as well as through the direct
#
linkages between the two so first and foremost i would say we need to be honest about our fiscal
#
side that you know we need to spend right now in the midst of covid but that we didn't leave much
#
space for it because of the slippages pre-covid and i think the best way to do this is to put in place
#
an institutional fiscal reform package which gives credibility to the market investors and rating
#
agencies that the country means business as far as consolidation and a reversal to better path
#
is concerned in the medium term so that you can borrow more in the short term to meet the
#
immediate fiscal needs you know because you are on a better path but you know we need to reorient
#
for that the expenditure has to be growth focused so we need to reorient from subsidies towards
#
infrastructure health and education i would do a very deep analysis of the subsidies there is a
#
lot of wastage a lot of money gets spent in administration and financial enterprises that
#
run and house the subsidies on their balance sheets rather than the subsidies being spent
#
entirely in reaching the last mile consumer or the citizen they can all be rolled perhaps into
#
a universal basic income and a lot of these inefficiencies of administrative costs be
#
economized and that freed up space can be used to increase the infrastructure and ease of doing
#
business on the ground so i would say that's first part of the fiscal institutional package the
#
second part of the package is something i wrote about in an op-ed in the economic times and i
#
just mentioned we need an independent fiscal council and we need a transparent public sector
#
borrowing requirement the council should be non-partisan or bipartisan it should report
#
to the parliament and not to the finance ministry and the public sector borrowing requirement should
#
be calculated by the independent office of the cag because if the government is producing these
#
numbers itself it becomes a prey to what is the goodheart's law which is that you know if the
#
measure by which i am regulating you can be manipulated by you of course the measure will
#
have no economic meaning or content in the first place and which is what has happened we have a
#
real deficit and we have an official deficit and the gap between the two has now become very very
#
large that we have to always talk about both in the same breath whenever we speak about them
#
that's two and third i think we just need to undertake massive divestments we need to unlock
#
the growth potential of so much enterprise space that has been captured by the public sector
#
it would have the collateral benefit of reducing the government's borrowing programs
#
and putting us on a better debt to gdp ratios now this requires conviction and commitment at the top
#
in the government that this is a better path in the long run rather than continuing to repress
#
the economy which would be necessary if we don't course correct on the fiscal front but i think
#
you know the government is still in the early phase of the electoral cycle it has majority
#
so i think this is the kind of transformational institutional reform that one would hope the
#
government would seriously undertake or at least start debating and discussing second i would say
#
we need significant reforms on the financial front i think something we pushed for when i
#
was at the central bank through a speech by governor patel is that the ownership of public
#
sector banks the the the regulation of public sector banks should be ownership neutral whether
#
they are owned by the government or whether they are in the private sector space the central bank
#
should be able to regulate and discipline them in the same way including replacement of management
#
and you know dilution of the government stakes if government is not injecting the required capital
#
this way you know problems happen even in private banks there are idiosyncratic governance failures
#
as we have seen but at least the central bank is able to take corrective actions to fix that
#
there is that's not possible right now in public sector banks second we do need a calibrated
#
comprehensive plan for public sector presence in banks insurance and other non-banks this would
#
mean i think divesting stakes below majority to start with then using that time to improve
#
governance standards by becoming arm's length in the paper with dr rajan we suggest creating state
#
linked banks rather than public sector banks where you basically move all the ownership of the
#
banks etc into an investment managing arm it's almost like a sovereign wealth fund so to speak
#
which would be run by professionals rather than actually run by the bureaucracy and you know they
#
would basically just appoint independent board members and then let these boards run these
#
entities rather than having a lot of control through a department of the government as we
#
currently have and third i would say that we need to continue with the process of strengthening bank
#
supervision and regulation this would mean actually creating puffers of capital in good times see even
#
right now we are doing a lot of restructuring and relief for the borrowers which is required
#
because of the covid's unanticipated and unprecedented need large nature of the shock
#
but we are not raising capital into banks on a war footing large private banks are doing it on
#
their own but what about others what about public sector banks why aren't we asking them for capital
#
if the losses start materializing when the debt moratoria expire how are we going to
#
capitalize these losses why aren't we planning for it ahead of time because if we are doing this
#
recapitalization when the economy is coming out of covid banks are not going to be in a position
#
to lend that time because they will still be dealing with the legacy loans problem so if we
#
learn the lesson from the last five six years we should be on a war footing capitalizing the banks
#
right now rather than leaving it for later so that i would say is point three so the first point was
#
ownership neutral regulation of banks second is a comprehensive plan to restructure the public sector
#
banks and third i would say capital capital capital on an anticipated basis rather than
#
backloaded basis and lastly you know everyone has been saying this we are done with milking the
#
fruits of 90s reforms and capitalizing on the divestment gains of 98 to 2003 i think we need
#
a new round of reforms uh at least on in their spirit several parts of the farm bill to me seem
#
to be in the right direction i don't know about the process through which it was implemented but
#
focusing on the economics of the farm bill it is trying to actually get the farmers closer to
#
the direct market prices rather than having giving a lot of power to the intermediary
#
wholesalers in between i think that was a problem and hopefully this is a step in the right direction
#
but you know farming is only a small part of the indian economy in a gdp sense it's very large in
#
a job sense but it is not the best jobs india can create we need the rest of the private sector in
#
services and manufacturing to get an even further boost again the labor laws are a step in the right
#
direction but to get manufacturing away from china as the world is moving away from china or
#
diversifying supply chains we are going to have to make land transactions to be done more transparently
#
and readily so we certainly need reforms there we need better ease of doing business on the ground
#
in terms of requiring fewer government clearances and reducing that implicit taxation in the
#
government and third we just need better infrastructure even now we barely keep up all
#
the time every time i go to mumbai i feel it always does enough when i'm on the roads in
#
certain parts of the country the roads are very good but in many parts of the countries they are
#
still very uneven and you know to have a national manufacturing and delivery and logistics system
#
you know the logistics there is a lot of improvement happening because of use of
#
tech etc but i think the physical parts of the logistics the physical infrastructure that's
#
underlying it can still be improved in terms of our ports airports roads trains and so on so i
#
think we need fiscal financial and real sector reforms that are truly transformational to me
#
this is like a 1990s moment we are not in a crisis one does not want a crisis to be required to
#
force these decisions on us i think we can use a bit of our sagacity in being able to see forward
#
visualize what the stress may be down the line visualize what a low growth would mean
#
for the youth and the children of the economy down the line visualize that if we have to do it and
#
sell our enterprises in the midst of a crisis like a southeast asian crisis it would be the
#
worst time actually to plan for their reprivatization instead laid out as a calibrated strategy ahead of
#
time if this is done in a decisive manner as a package i think it will increase the confidence
#
and the investor sentiment towards india tremendously and enable the government to
#
undertake more fiscal expenditure in the short run without actually there being a backlash in
#
the market so if i could give an analogy here you know i i like watching birds it is something i
#
learned with a group of naturalists when i was during my rbi term but the naturalists were also
#
very adept at explaining the rest of the nature to you and once we were observing an insect i
#
think it was a praying mantis which was trapped in a spider's web and they explained to me how
#
the spider builds the web in the first job of the spider is that it actually makes a massive leap
#
from wherever it is sitting on to where it wants to be on at the other end of the web and to do that
#
it basically squats and uses all the strength of its thighs to make that one big jump to lay that
#
first web across it knows what the target point is it has to make a big leap now once you have built
#
that first bridge to your target point building the rest of the web around it becomes very very
#
easy and i think india is at that kind of a moment we have to use all the strength that we have
#
figure out where we want to be give a clear path build a bridge to that by announcing the right
#
sets of reforms once we show that path as being our trajectory building the rest of the growth
#
around it will become much much easier and i think we don't have to be paralyzed we don't have to be
#
in inaction mode we also don't have to gamble we also don't have to say oh we will just spend
#
and we will worry about what happens later no we can actually anchor whatever medium term long run
#
need to be with the right fiscal financial and real side package and once you do that anchoring
#
we would actually be on a very prudent and safe path in my view i don't see why india can't grow
#
at a very good rate given the demographics even the potential given the hard-working nature and
#
the aspiration of ru i think it's a matter of course correction and being on the right trajectory
#
avoiding the regression to the centralized nationalized state and allowing the private
#
sector both in terms of space and incentives to flourish in a manner that it did during the
#
90s and early 2000s that metaphor of state as spider is it's quite awesome because you know
#
like some spiders the state can also be rather predatory now before i go on to talking about
#
the political economy of this and the practicality and likelihood of these kind of changes happening
#
i want to take another tangent because which came to mind when you sort of mentioned the
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farm bills that what happens in the discourse in india because you know everything is so polarized
#
and everything is so tribal is that typically we have chosen our tribe and you know we will
#
stick with it regardless of what the issue is for example what's giving me what's almost ironic now
#
is that a lot of the people in the congress opposing the farm bills are completely oblivious
#
to the fact that in their manifesto in the election last year they had very similar
#
proposals and intellectually many of them in private will tell you that you know yeah this
#
is a step in the right direction and did though there was a lot of reflexive opposition to the
#
labor reforms a few months ago only because they came from you know a particular government
#
while earlier across parties there's pretty much been a consensus on the kind of reforms needed
#
especially since our labor laws hurt workers so does that then become an issue because on the one
#
hand we want to build a constituency for these kinds of ideas but on the other hand is it
#
incredibly frustrating to see that in these polarized times people just respond at this base
#
tribal level where they're not looking at the ideas themselves they are just seeing which is a party
#
they happen to be associated with at this moment in time and and therefore any criticism of this
#
government will regardless of the merit of the criticism be attacked by a lot of people as being
#
anti-national and being whatever and you know the whole discourse just gets toxic is this something
#
you've thought about yeah i think that's unfortunately the politics of the times we are in it's not just
#
in india it's actually all over the world i don't know if you saw the presidential debate yesterday
#
but you know it was probably i don't know whether it was tragical or comical but it certainly
#
epitomized everything that you said about the highly polarized nature of the politics at
#
the present point of time in the world i think the only way out is to keep sending some bites
#
of reason i think we need more economic analysis of these kinds of reforms being laid out in a
#
dispassionate objective non-partisan way i think agri-economists such as you know professor asho
#
gulati at ekriyar or dr ramesh chand at the nipfp they need to they need to be read they need to be
#
heard they need to explain what exactly were the failures in the existing system and how they are
#
going to be tackled of course it would help if the government in the same week when they remove
#
onions from the essential commodities act don't then ban exports sending exactly the opposite
#
signal at the same time but you know we just need we need we need more economic discourse
#
we need more discussions along these lines and perhaps there needs to be greater preparation
#
through written documents laying out what the failures are with facts and data on the ground
#
what are the reforms what are the options on the table what are their pros and cons and why
#
specific reforms are being chosen i think it would be nice if there was a little bit of a discipline
#
of going about this in an organized manner with documents in the past even though we never
#
implemented many of the committee's reports we used to set up committees at national level they
#
would be chaired or at the central banking level they would be chaired by the highest quality
#
highest integrity bureaucrats former central bankers and so on and they used to provide a
#
blueprint even now in my piece with dr rajan we refer to the narsimham committee of the 90s the
#
pigeon iac committee of the 2014 and maybe maybe there is some usefulness in the bureaucracy of
#
actually creating records of proposals which are very carefully laid out reasoned for analyzed
#
with their merits and demerits and so on i think i think that is the only way forward that i see
#
i think in a way i feel quite strongly that we are at a moment when transformational reforms are
#
needed there's a sign that some of this is being undertaken in the farm and the labor front
#
i would add three more pillars to that on the fiscal institutions the financial sector notably
#
the public sector banking and presence in insurance pension etc and third on the real side especially
#
on infrastructure front i think if we can add these three pillars i think we would be more
#
decisively on a course correction from the last 10 12 years that we've had of i would say patchy
#
growth short-term growth back loaded with macroeconomic or financial misdirection short-term
#
pump priming of the economy with you know down the line losses that are materializing in a very
#
significant way constant fudging and band-aid kind of solutions rather than decisive action to
#
stop the wounds from festering and spreading to other parts of the economy i think we need
#
to do something very decisive and i think if we do that the 90s should show us that there will
#
be fruits that will bear out for at least a couple of decades if we do that in a decisive way i think
#
i hope that covid is not just a difficult humanitarian crisis for the country it is
#
and tragic as it is it perhaps also offers an opportunity to also actually fix many of the
#
things that were not right even pre-covid and if we do that at least the crisis would be you know
#
we would have utilized the crisis to the best advantage of the economy under the circumstances
#
no no no and just sort of thinking aloud and adding to you know what we were talking about
#
about this course is that i think people also are attracted to simple narratives and therefore
#
attracted to easy binaries i mean what's happened in the farm bills week was very complex you know
#
there's a means versus ends issue i think the way they pushed it through was anti-democratic there
#
are issues that you can raise against the bills by saying hey what about states rights and these
#
should have been left to the states equally many of the you know the details of the bill are great
#
and is in fact what the congress had in the manifesto last year which makes it ironic and
#
as you pointed out they also did the incredibly stupid thing of banning onion exports same week
#
so god knows what was happening so the point is it's all very complex and nuanced there are things
#
to praise there are things to not praise there are things to withhold judgment on but we don't
#
have an appetite for that now you know before we kind of wind it up and i'll leave sort of
#
uh the political economy question for the last but i'll get to it by taking a segue back into
#
uh the personal where you had once said that you chose the life of an academic because
#
you know you were in charge of your day you can wake up when you want you can wear what you want
#
and so on and so forth and at the same time you you know chose to give up that life of an
#
academic and actually come and work in the reserve bank of india and you know so on what drove you to
#
do that you know were there problems that you thought you needed to solve and that you could
#
contribute to and what was it like the experience of them joining the government you know how was
#
it different from what your expectations were yes see as i said for someone like me who was studying
#
banking crises banking regulation financial stability i think a central banking job in
#
some ways a natural culmination no at least at some point you want to be able to take your
#
your analysis your research your expertise to implementing things in a policy sense
#
a central banking job can be fairly academic as far as allowing you to have the conceptual
#
framework to solve the problems as concerned so i'd always thought this would be a nice thing to
#
do i engage a fair bit with central banks in an advisory capacity of course most of the times
#
advisory roles have no executive decision making capacity of course in the end at a central bank
#
the governor and the board are the ultimate executives who are in charge but you know
#
deputy governors can shape the agenda a fair bit in their own respective portfolios and i was
#
fortunate that i was allowed to have a voice even in portfolios such as bank regulation which were
#
not under me actually in fact it became one of my thrust areas as the face of the rpi on some of
#
this even though i would say deputy governor ns vishwanathan was was the main person driving the
#
regulation side when we were there so i think it was just a very natural thing to do the opportunity
#
came about i applied for the job i had a video conference interview with the appointments
#
committee of the government of india it was very serious grilling i felt inside i was the right
#
person for the job of course i didn't know who else was applying so you don't know whether in
#
a relative sense you would look right or not but in an absolute sense i thought i was the right
#
person for the job and even when i finished my term i still think you know it was a very good
#
fit i you know sometimes when you are doing what is exactly right for you there is a magical feeling
#
inside you of satisfaction that this comes naturally to you the job requires you to do
#
certain things and you are able to bring all of your experience knowledge and the ability to work
#
with teams and i think it was all kind of very nice i think i enjoyed my experience thoroughly
#
i thank the government of india and the reserve bank of india for this opportunity
#
i think i had a great time working with the staff at the rbi i hold them in the highest regard both
#
for their hard work as well as integrity and i think i couldn't have asked for anything more
#
uh you know it was also personally very rewarding for me because i spent two and a
#
half years with my parents it was also personally challenging because my wife and son were in new
#
york so i was going back and forth a lot and you know i at some point i just got better at managing
#
their jet lag but it was quite crazy now when i think about it you know to have a family 10
#
and a half hours away or nine and a half hours away in the timing sense and you know total
#
travel time 20 hours each way like sometimes i used to come to new york for a day or 36 hours
#
and go back and my my son was in a play and i really wanted to watch one show so i remember
#
i landed on saturday morning i watched the show at 2 p.m and i took the 8 p.m flight back because
#
i had to be at rbi on the job so it was quite crazy in some ways but you know sometimes you are
#
in in the midst of things and the costs don't actually bear upon you so that was i would say
#
second the third uh see i i have a slightly different take on central banking than what a
#
lot of central bankers do a lot of central bankers say even if they have been academics in the past
#
that real world is very complex you can't use your frameworks you have to be willing to think on the
#
fly etc and of course all of that is true but i disagree with not being able to use frameworks
#
in my view it is so complex the problems are so complex that unless you discipline yourself and
#
think through an organizing framework it doesn't have to be academic but you do need to do
#
analytical thinking that clarifies what are the big issues what is the key diagnosis of the
#
underlying problem and based on that diagnosis what is the ideal reform or policy that you want
#
what are the political or other constraints in the system and what is the best way to actually
#
then advocate for change and make it happen sometimes you can make the change yourself
#
sometimes you have to work with others to make the change my approach was that my speeches
#
which are combined in the book along with this new detailed introductory chapter i thought my
#
speeches were basically an advocacy for change they were sometimes written right from first
#
principles some of them are a little more advanced but whatever way invariably at the end whether it
#
was resolution of bank loans setting up of a public credit registry to sachetize and democratize
#
credit in india whether it was about striking the right balance between the government and the
#
central bank whatever the issue be they were always meant to actually provide a diagnosis
#
of the key underlying problem and then push for a change you know my ideas may not have been the
#
best ones but i think if you push for change you advocate for change what you want is a public
#
discourse a public debate and if that bubbles up then you know you get better ideas and you get
#
some movement of the towards the right solutions as you rightly pointed out it's not just about
#
a central bank it's about the fact that there is common man and the economy there is the government
#
and very often the narratives have to be brought together to meet at a point
#
where politics and the economics align with what in my case the central bank could do
#
and i think building that narrative is important it's a key to lend it some reason and an objectivity
#
in the decision making and i think that's a part of the challenge and i think i'm very happy i'm
#
very grateful to the governors i worked with especially governor patel for giving me a lot
#
of freedom to speak as a deputy governor and and and sort of being this agent for change and i see
#
the book as just a continuation i wasn't sure when i left the reserve bank of india whether i would
#
do something like this as a historical account it's mainly my speeches but with that historical
#
account as the common lessons i learned in the introductory chapter on fiscal dominance
#
i thought i may just let it be and move on but the more i spoke to the former governors and
#
deputy governors and reflected myself it became clear that that you know you are on a continuous
#
trajectory of pushing for change there are no full stops you want to use your knowledge experience
#
a historical account to try and constantly push the system into the right direction
#
i think i have been very dispassionate and objective in my you know discussion of the
#
problems you know i've i've tried to just push for economics wherever they are well grounded
#
and whatever i see as the clear stream of reason emerging out of that thinking and you know hopefully
#
it travels to the right place yeah i mean i was just quite alarmed to know that you had
#
contemplated not writing the book because on my own behalf and on behalf of many of my listeners
#
who i think are surely going to be future readers of your book i want to thank you for writing it
#
you know while you were just talking about why you took up the assignment you do you pointed out
#
that you know one of the things that reassured you was that you knew you would have a voice
#
and i have heard you say elsewhere and i found it very poignant that your exit was a kind of voice
#
and you know in an interview that you did with ira dugal you you know spoke about the time you
#
left and the sort of how you push back against the short-termism or whatever pressures there were
#
and you said quote when these came to a head the central bank has to have the ability to say no
#
when that is not in the public interest we did say no we put up exactly the right defense and
#
resistance that needed to be put up in the face of such pressures whatever defense we put up was
#
entirely in the public interest the country is far better off that our banks are not in worse shape
#
than what they could have been given the pressures on us at that time i think it came at a huge
#
professional cost to some of us but given the mandate of the rbi and given what we interpreted
#
that mandate to be we thought we had to pay the price of stock code and a couple of questions
#
here and one is of course the question about the political economy itself that you go in there you
#
have a clear framework your professionals you know what is the right thing to do but all of these
#
reforms that you laid out earlier in the episode and that you've you know elaborated upon so lucidly
#
in your book how likely are they to happen just given the incentives of the political players
#
in question number two how hard was that struggle for you did it get frustrating did it seem
#
rewarding and at times at times and and and thirdly what kind of struck me is that you know when i
#
think of the way some of the protagonists here involved really fought for the good ideas which
#
in this case by we presume you meant yourself and governor patel you know in a democratic republic
#
we can't depend on people of principle to come and do the right thing you know we need rules of
#
the game to be laid down everybody who comes won't fight for the same principles and you know some
#
you know some will toe the line and that's just over a long term that's completely inevitable so
#
what is your sense of it one was it a futile battle two can the battle actually be one given
#
the way the system is already designed and the way it exists and the way everybody's
#
incentives are and and this is basically my penultimate question i'll have one more after
#
this yes yes i think uh let's go through the three questions in sequence because it's a very
#
interesting thread actually so first i would say i think the question to me is uh i think this goes
#
back to the theme you have been raising on and off the question to me is what is it that the people
#
of india want is economics on their agenda or not do they want growth or not do they want their
#
children and youth to have uh high-skilled jobs down the line or not or do they really want uh
#
uh what looks like easy distribution of subsidies by the government uh low growth low productivity
#
and you know cozy public sector banking jobs which are highly unproductive for the rest of
#
the economy and eventually also for themselves and their children and youth down the line i think this
#
is a this is a deeper question i just want to raise i would think the economics should be a lot
#
more on people's minds than what it seems to be maybe it is but it is not getting vocalized as
#
much uh there are distractions of various types and maybe they are taking over but as we said the
#
right reforms will happen when the politics and economics align or when they are thrust upon us
#
by an unfortunate shock or a crisis it's better to be in the first situation where politics and
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where politics and economics align and to that everyone has a responsibility i think they have to
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want the reforms they have to want the economic change for the long run i think the narratives
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the public discourse the debate are an attempt to bring together that confluence of politics and
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economics but i do think that no one individual can just simply relegate the responsibility to
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everyone else in the end second was it frustrating not at all you know i expected the problems to be
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severe as i told you that india chapter in my guarantee to fail book just yesterday i read it
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again and i actually felt that oh actually the same thing happens you know it all happened all
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over again whatever was the problems flagged in that chapter after eight or nine years and
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sometimes that is the beauty of economics that when you learn robust lessons from past experiences
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and you are able to extrapolate uh with the right caution you actually realize that the underlying
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economics and political forces are likely to play out unless you fundamentally shift them i think
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the pressures that we faced were anticipated i think they were a bit more uh if i could
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uh say they were a bit more open and maybe a bit more concentrated because of the short-term pressures
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that we were alluding to in 2018 it was also a challenging period because there were some other
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shocks you know oil prices were going through the roof between april to october 18 creating a
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current account deficit problem we had the non-bank finance sector and related banking sector issues
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in september or august september of 2018 so it was a very complex mix i tried to describe it to an
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extent in the previous chapter but no i was never frustrated i think i tried to do my job at some
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point i had to take a call on whether what i thought were the key issues which were now the
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intertwining of the fiscal and financial whether being in the central bank was the right position
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to raise these issues or being outside and that combined with my personal situation meant that
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it was better to be outside but exit was a form of voice to raise these issues and therefore in
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the end i decided to write the book because i wanted to flag these issues both as a historical
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account for everyone to see in fact i've even put my minutes verbatim i have not even changed the
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description of the speeches i have not tried to provide any narrative in hindsight because i
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wanted to record them as they were given rather than with the benefit of hindsight around you
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know what they meant of course the introduction chapter is entirely new and binds everything
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together the good news is i won't have done anything differently if i was given a rerun
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and i always had this clarity inside me that i want to be able to sleep at night with a no regret
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outcome for the day if i could change something in the right direction based on my assessment of it
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i should make an earnest effort to do it and you know you accept whatever comes out of it these are
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very complex problems complex sets of forces involved not just economic but also political as
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you mentioned and third and the last question can you can you repeat what was the last point
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my third was sort of a thinking allowed of how we cannot depend on men of the
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yes yes yes yeah yeah absolutely and in fact this is my thrust all along the book which is that we
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have to strengthen our institutions i think i'm very clear that this idea that a country can be
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made just on the basis of a few individuals of course it is about individuals in the end it's
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individuals who have to make the institution stronger but as a framework for thinking about
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what the country needs i think what we lack in a significant measure is that our key institutions
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uh enforcement of contracts rule of law uh the independence of the financial regulatory processes
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i think these need to be given greater sanctity in the letter of the law in their execution and
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implementation and they have to be more robust over long stretches of time to short-term
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political industrial or other kinds of captures where the pressures might come from i think
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i see the independence or the operational autonomy of the central bank as a small piece
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of this bigger puzzle that we have to solve on on strengthening our institution i think if our
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institutions are strong if we get the right individuals we will blossom even further but
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if our institutions are weak even with the right individuals we might not be able to make progress
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and i think that to me is what we have to tackle a lot of the reforms i have proposed a lot of the
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uh reforms that are proposed in the individual speeches they are all about actually strengthening
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the institutions of the country in the financial sector decision making and i think covid has in a
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difficult way i think offered us the right opportunity to undertake some of these uh
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institutional changes right so my final question which is um you know something i ask all my guests
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on whatever is the subject we're speaking about and you know you've been an insider in the system
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you are you know you're intimately aware of all the nooks and crannies of the politics and the
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economics of it if i ask you to look forward 10 years to the year 2030 and where india could be
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then what's like a best-case scenario and a worst-case scenario for you or to phrase it
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differently what gives you hope and what gives you despair about the trajectory of events right
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now uh see i think what happens with uh having a financial sector that is not doing very well
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what happens with fiscal situation that's a bit overstretched what happens with lack of
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adequate decentralization and privatization of the sectors of the economy is that
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outcomes become very risky they start depending too much on political decisions that will be
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taken and of course many people think this is actually a defining characteristic of what's an
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emerging market versus what's a developed economy which is that politics should not matter too much
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to the end outcomes of course politics is mattering more and more even in developed economies to me
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that's a sign that they are also actually down not such a great path in many cases so what i'm
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trying to say is that i think the risks have risen in my view not just because of covid but because
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of our pre-covid conditions as well covid has exacerbated these risks uh if we take the
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transformational institutional reform path on fiscal financial and real economy i think given
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that the rest of the world is on average also sliding onto not such a great path we could
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actually emerge as very important winners in the process in my view i view this way this could be
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a golden opportunity for india without doing much on our own the world is looking to diversify its
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supply chains away from china and you know given our size given our workforce base we are a natural
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contender so the question is do we contend well uh given that this opportunity has arisen and you
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know will we do what is required to to really make it count i think as i say in the first sentence
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of my epilogue no country can take growth for granted it is like you have to invest in it
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every single day sometimes you have made a big investment and then you can milk it for a while
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but you have to keep at it you simply can't take growth for granted no country is so good or strong
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that they can grow for decades without actually undertaking more transformation along the way
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so so that's the rosy part that if we take the right institutional reforms in fiscal financial
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and real side the global situation is such that india could actually emerge to be a very significant
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beneficiary see we have always done well in services where we have not done well is in
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manufacturing and where we have i would say finally shown signs of some conviction and intent is on
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the agri side but on agri side i think you need also consolidation of the sector so that a lot of
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our agri labor can actually move into higher paying and better skilled jobs over a period of time
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so to me that's the rosy outcome that politics and economics indeed align recognize the
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opportunity that exists both in a global and in a domestic sense in a global sense it's an
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opportunity in a domestic sense it's a necessity but it's not going to come without taking tough
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actions what is the bad scenario the bad scenario is one in which we don't get out of this
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regression of the last 10 years in going for more centralization going for more quick fixes
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through pump priming of the economy rather than actually putting in real pillars of fiscal
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financial and real stability for the next two or three decades if we go down that path we just
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keep doing band-aids on our fisc financial and the real economy side i think we will see an erosion
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of the growth potential of the economy on a steady basis loss of productivity loss of the ability to
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create good jobs and high skilled jobs and it could just be it could be sort of stagnation of
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growth whether our supply side remains benign and doesn't allow inflation to pick up down the line
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or whether inflation also starts rising if inflation starts rising with stagnating growth
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that would be a very very terrible stagflationary outcome typically high debt situations also
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have their own deflationary pressures and so my sense is a bad scenario a really bad scenario
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would be stagflation a scenario not as bad as that would be a stagnation of growth
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but with also a kind of very low inflation or even deflation i think so i think a course correction
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if undertaken could put us closer to the to the rosy path but if we don't course correct i think
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i i do fear that we are slipping in terms of our growth potential that that worries me
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uh but therefore i hope that the book the chapter some of the messages in there at a minimum
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they get more individuals to think about economics in what they are demanding from the system
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as i said you know the ideas i have may not be the right ones but i think they certainly seem
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to be relevant questions for india and so hopefully public debate can push the system closer to the
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rosier path than the worst scenarios that i outlined veeral i love reading your book and
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i enjoyed talking to you today i think i've learned so much and it'll take me some time to
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you know listen to the episode again and process everything thank you so much for your time and
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insights no thank you amit it's been a terrific conversation and all the best to you and all the
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listeners uh for and to your loved ones for staying safe and healthy during these challenging and
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difficult times i hope that the curve is about to peak soon it shows showing some signs of declining
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over the last week or two and i hope it has as steady a decline as new york city had post mid
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april over the last three four months i would love to see that every day i wake up and i see
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i type india coronavirus cases that's my first thing i type because i want to see that the curve
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is steadily declining for several weeks in a row so that we can start dealing with the post covid
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recovery phase very soon thank you if you enjoyed listening to this episode hop on over to your
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nearest online or offline bookstore and pick up veeral acharya's book quest for restoring financial
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stability in india the show notes contain various other links including interviews of his so check
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that out veeral is not on social media which is hardly a surprise he is already veeral so why
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should he care about going even more veeral you can follow me on twitter at amit varma that's
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a m i t v a r m a where i promise lots of meaty links and few bad jokes like this you can browse
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past episodes of the scene and the unseen at scene unseen dot i n thank you for listening
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