On 4^th September, 2013, Dr Raghuram Rajan (Dr. RR – this is the short form I would be regularly using during his tenure) took over as Governor of RBI and gave a statement which has been acclaimed across the media and has been considered as the most comprehensive statement issued by a central bank chief on his first day anywhere in the world.  I too read the same with eagerness.   Certainly Dr RR has touched upon number of important aspects.   Most of our keen readers must have studied his statement.   Below I will give some extracts and wonder whether this good intentioned  man will be able to carry forward his agenda.

In his statement while dealing with willful defaulters he says “Promoters do not have a divine right to stay in charge regardless of how badly they mismanage an enterprise, nor do they have the right to use the banking system to recapitalize their failed ventures”.  He further says “I have asked Deputy Governor Dr. Chakrabarty to take a close look at rising NPAs and the restructuring/recovery process, and we too will be taking next steps shortly”.

The next day we saw a huge surge in prices of the banking sector shares as if all the ills of banking sector will be removed in next few days by the new RBI Governor.   The surge in prices happened inspite of the fact that ratings of number of banks was downgraded by a well known rating agency. 

I have no reasons to doubt the credibility of the statement or the good intentions of Dr. RR.   But, my past experience of the political class does not give me confidence.     Did anybody doubted the credibility of MMS when he became PM of India.   Even now few are ready to believe that he had a share in the booty of Congress leaders.  

Why I have serious doubts about the above statement  that the political bosses (i.e.  Finance Minister and Prime Ministers) do not believe in what has been professed by Dr RR.  Let me explain this.  Dr RR says “Promoters do not have a divine right to stay in charge regardless of how badly they mismanage an enterprise”.     Will Dr RR can also say the same thing about his bosses – I mean FM and PM.   Everybody is well aware that they have mismanaged the whole nation – economy is in serious trouble, inflation is touching sky, current account deficit has been increasing.   Does Dr RR has any doubts about the present status of Indian economy.   According to the logic of Dr RR, both his bosses do not have the divine right to stay in charge as they have miserably failed in managing the country, but they are continuing in their office shamelessly.

My experience indicates that in case your bosses do not profess in what you believe in, soon either you have to fall in line with them or you will be in the line of continuous firing.    Therefore, bosses of Dr RR are likely to resist any attempt by him to dethrone the willful defaulters.

We will closely watch how our new Doctor controls the high pressures from political class and steers the economy out of woods.   Therefore,  Doctor Saheb, be aware of your Bosses  and we wish you a Good Luck.  (I will later on write more about how he has to be be aware of even his juniors who are expert in manipulating the things !)