Last weekend’s was not the first‘ he said-he responded’ episode involving former RBI governor Raghuram Rajan and finance minister Arun Jaitley. But it was probably the first time Rajan, who his admirers always say brings analytical rigour and honesty to any debate, hit a false note, and a jarring one, too.
Demonetisation (DeMo) and the implementation of the goods and services tax (GST), said Rajan, were twin policy shocks that hit India’s growth rate just as the world economy was recovering. Therefore, he argued, India’s growth rate, at a recent average of 7%, is less than both what the economy can potentially do, and what the country needs.
Jaitley’s response principally focused on the growth rate part. The finance minister pointed to a two-quarter dip in GDP growth and to the subsequent upturn, with the last quarter’s rate being 8.2%.
But the bigger critique of Rajan’s critique is bigger than an argument based on quarterly growth numbers. Because Rajan can always argue growth numbers would have been higher had DeMo and GST not happened. Where the former RBI governor hit a jarring false note is in his description of GST as one of the twin shocks, without any qualifier.
The FM, and the Modi government in general, argue that DeMo and GST were both necessary and systemically game-changing reforms. Many independent observers agree that GST is indeed a game-changer, but that DeMo achieved less than it promised and/or that it didn’t achieve what the government said initially it would.
That’s a fair and honest position for an independent observer. There can be fair and honest rebuttals to the critique of DeMo by pointing out that tax compliance seems to have increased, that notoriously crooked economic agents like those operating in the real estate sector have taken a deserved hit, that there’s now a list of shell companies and that they can be investigated, that there’s at least a little more fear about off-the-book transactions in India now because of DeMo.
Fission, not frisson
The DeMo debate should go on and it deserves more dispassionate analyses. The GST debate should also go on. But that debate doesn’t, and can’t, centre around the question whether GST was a good thing or a bad thing. GST is absolutely, totally, unqualifiedly a good thing. It’s a tax reform that will over time bring the entirety of India’s production-consumption system into modernity.
No one is, of course, saying Rajan’s speech or his views have anything to do with how Congress wants to play its election time rhetorical game. It’s about what the former central banker said — that’s what invites this comparison. Rajan, an excellent public speaker, has spoken many times on many issues of import, and his critiques, whether one agreed with him or not, have been rightly framed most times.