Former RBI governor Raghuram Rajan says there is no better alternative to democracy, but what is needed is persuasive leaders to take people in the right path. Excerpts from his interview with Sagarika Ghosh of The Times of India .
Sagarika Ghosh: The government has just celebrated the first anniversary of demonetisation. Do you believe there is a cause for celebration?
Raghuram Rajan: I was hoping to get away from a discussion of demonetisation. I would repeat what I said a few months ago; which is, we still have to wait for the full evaluation of the data. The costs have been upfront and I think this should not be underestimated. There has been a lot of pain suffered by the informal sector. There is anecdotal evidence and many newspapers have reported about job losses and, I think, activity has suffered. Set against this is the possibility of potentially better tax compliance. The income-tax authorities have a lot of data and if they go about it carefully without harassing innocent bystanders, it may result in higher tax collection over time. The possibilities are out there in the future. Costs have already happened. Therefore, wait and see how it plays out.
Is it an occasion for celebration? I think it is important to emphasise the message that we need better tax compliance in this country and, to the extent we can do it without unleashing inspector raj, I think it is important that people pay up. To that extent, symbolic occasions are useful, but we should not sort of overemphasise when we do not know the benefits.
Sagarika Ghosh: Another theme that you have spoken about in your book – and I know that you are writing on this theme as well – the issue of populist nationalism. Do you believe national zeal as we are seeing the world over actually and, of course also in India, is damaging economic growth?
Raghuram Rajan: I think it has the potential to damage. I would define it very simply as the majority community feeling aggrieved that it is being discriminated against. It exists across the world. It exists in India also, and there are people who appeal to this sense of grievance.
Now, there are often underlying issues. For example, an issue of jobs. Some of our pretty strong communities in India have started protesting. They want reservations, because ultimately it comes down to their not finding jobs. So, I think, it is very important to tackle the underlying economic problem, that of creating jobs, but it is also important that we do not fuel the fire by emphasising the discrimination that the majority faces while ignoring the fact that minorities also historically have faced discrimination.
Ultimately, nationalism becomes a play between two disadvantaged groups, except one of the disadvantaged groups now is a majority community. The only way to solve it in some sense is broadbased economic growth. We need to focus on that as the ultimate solution rather than emphasise grievances, which are politically short term, very convenient but have the potential to rip apart the fabric of this country.
Sagarika Ghosh: But do you believe that nationalism is, by definition, inward looking and, as you said, feeds a sense of grievance and, therefore, anti the principle of openness and open markets and openness to the world generally? I mean do you feel nationalism is too inward looking to be a force of economic growth?
Raghuram Rajan: It is inward looking and the policies that are often advocated would come in the way of growth, rather than promote growth. To that extent, it is not patriotic. It is nationalistic and, therefore, divisive and perhaps has the potential to weaken the country rather than strengthen it. That is why I think it could be quite dangerous. I do think, however, that it is wrong to dismiss the people who are voicing these things and ignore their concerns. I think it is important to understand what they are saying, why they are saying it and not gloss over it by saying these do not understand.
Ultimately, in many of these protests, there is also a sense of identity, which is being eroded, and it is incorrect to say you do not need identity. It is important to understand that the cry has to be listened to, but we have to do it in a way that enhances the tolerance and respects that people have for one another in the country rather than diminish diminish that.
Sagarika Ghosh: I will come to your tolerance question in just a bit, because I know it is a question that concerns you. It is often said that India suffers from a surfeit of democracy, that there is too much democracy in India. Do you believe that democracy is India’s strength in pushing us towards faster growth, or is democracy India’s weakness?
Raghuram Rajan: I think ultimately democracy is strength. I say ultimately, because in the short run, the impulse of democracy may look as if they stand in the way of growth. For sure, it is easier to run a road over the objections of the many people whose houses this goes through, without paying any attention to them if you were in a more authoritarian regime. It is much harder to do this in a country like India, where there are so many entrepreneurial politicians, who spring up to fight for the rights of those who are being oppressed and rightfully so.
I think longer run, it is beneficial because it tends to be more egalitarian, takes more people along with it and recognises when the market system gets skewed towards one group or the other. In a country as varied as India, with the variety of people that we have, the variety of languages, democracy gives us a certain amount of release of pressure. It allows people to voice their protest, to be heard and for the system to react.
Now what we really need is leadership, rather than followership. Leadership, which says okay I hear you but even though this is against your short-term interest, this is in our collective long-term interest and we should go this way. So I do not see leadership as always listening, but I see it as sometimes convincing and saying we must move in this direction because we have to, it is needed.
And so, what we have to do is find a way for persuasive leaders to take people in the right path. But would I trade our democracy for anything else? People always pick and choose the authoritarian leader that they want and my sense is you do not. You rarely get the authoritarian leader you want, you land up with the authoritarian leader you do not want.
Sagarika Ghosh: You are making a very interesting point, that for democracy to succeed and to push growth, it actually has to have a really good leader. It has to have a visionary leader because democracy without that visionary leader is not going to take your towards growth.
Raghuram Rajan: Well, it prevents you from falling too far, because democracy always has the solution: throw the rascals out. But without appropriate leadership, you can also flounder. So studies of the difference between democracies and authoritarian regimes find that democratic growth is much more stable. Some have even found that it is higher but the most important aspect of democratic growth is that it is stable unlike authoritarian growth, where you can get very fast but also very-very slow as in Mugabe, Zimbabwe or Mobutu Sese Seko’s Congo.
Sagarika Ghosh: Does the rise of illiberal democracy worry you, because the feeling is that democracy’s ideological competitor was first fascism, then communism but now it is illiberal democracy that is elected autocrats, who are elected through the ballot box but then who are also autocrats and authoritarian? Does that phenomenon across the world and of course in various countries worry you?
Raghuram Rajan: Well, it is worrying. It is often people who appeal to a certain segment of society and have a very strong following. I think what happens then is the potential for mistakes increases, because you are not listening to the broader electorate. These are the people who elected me. I am going to listen to their will and wishes and you take the country down the wrong path sometimes. I also think illiberal democracy is not just a function of the lead, it is a function of the system, which does not stand up and exercise independence where corporate houses, the press, the business groups, all of them essentially lean towards it, even though there are exceptions.
Sagarika Ghosh: Why do they do that, in your opinion?
Raghuram Rajan: Because the interests are all aligned and this is where illiberal democracy often is crony capitalism also. Because it is a small group which basically has captured the pathways to wealth and there is a cosy relationship between the political establishment and the corporate establishment and often because the press is also owned by the corporate establishment, independent voices tend to get suppressed or drowned.
So, I think, there is a system in which illiberal democracy flourishes and that system also needs to be tackled rather than specific leaders.
Sagarika Ghosh: Just on this question of illiberal democracy, a lot of people have seen the Aadhaar card, the manner in which the Aadhaar card linkages are being pushed to bank accounts, to telephone bills as sort of a creeping surveillance state that the state is intruding into the lives of citizens, citizens are being made accountable to the state rather than the state being made more transparent and accountable to the citizen. How do you see this Aadhaar card implementation at the moment? Do you believe a card which was designed for welfare is becoming a kind of stick with which to beat citizens and pry into their individual lives? Or do you believe it is actually going all fine?
Raghuram Rajan: Any such venture, we have to have checks and balances right. We have to have places where people can appeal if the system gets oppressive. Now, there is a very legitimate question which the Supreme Court has asked in how much should the state know and how much should it be able to track you and what are the safeguards on it using the information it acquires. I think those are very legitimate questions.
It is important that we ask them early and we have checks and balances to make sure that information is not misused. However, a state which has no information, an incompetent state, is equally problematic. If we do know where people have hidden their money and we cannot enforce tax compliance, we have a very biased governance structure where the poor salaried worker pays their taxes while everybody else runs off and enjoys the money that they have saved from the taxpayer.
So, I think, there is a balance as with all things. We have to have a process by which we have professional organisations manning these data and that they have the independence and oversight by the citizenry to make sure the information they have is not misused. We need to go there. We are not there yet. We need to create structures that do that. But if we can do that, then we have a more informed government, but a government which does not misuse that information. We need to work on both sides so that the information is acted upon in a reasonable way and brings to the people the gains from that.
(This article was originally published in The Times of India)
Source: Economic Times