Growing Intolerance Leading To Shrinking Economy, Warns Raghuram Rajan?

Raman Swamy

For a full year after he stepped down as RBI Governor in September 2016, Raghuram Rajan refrained from speaking out.  Now he has come out with a book entitled “I Do What I Do” and has been talking about what he thinks about India’s current economic, political and social scenario.

In various interviews and talks during the past week, Rajan’s focus has been as much on why the growth rate has slowed down as on what needs to be done to ensure that the country gets back on track to achieve its potential as an economic super-power.

As a world-renowned monetary economist with intimate knowledge of the inner workings of the system in India as well as the advantage of studying developments from afar for the past 12 months,  his observations are deserving of close attention. 

By the same token, the concerns he expresses and his words of advice and warning on the broader issues of social and cultural policy are also worthy of a patient hearing, at the very least.    

How can an economy grow in a climate of social unrest?  How can businesses thrive in an atmosphere of growing violence and cultural intolerance?  Questions like these underlie much what Raghuram Rajan has been saying in the past few days.

Back in October, 2015 when he was still very much the RBI Governor, he had raised similar concerns about intolerance and religious discrimination during a lecture to students of IIT, Delhi.  At that time he had been virtually admonished for speaking out of turn and even snubbed by some central ministers.  One prominent ruling party leader went to the extent of labeling Rajan as “mentally not fully Indian".

Today, Raghuram Rajan is a free man, no longer constrained by any official post.  He remains careful to adhere to understatement, but still conveys a sense of urgent concern over recent disturbing events like the rise of hate crime, including cow protection killings and the brutal murder of journalist Gouri Lankesh.

He does not refer directly to such specific incidents but evidently views them as symptoms of a trend towards growing intolerance and imposition of mob rule mentality.

It is revealing that an economist should dwell so much on social, cultural and religious issues.  But that is precisely his core message – that India can grow as a nation only in an atmosphere of free speech in an open society.  As he says - “Actually, its all about tolerance.  A country like India with a billion people has to be an open society to survive and thrive”.

“Every sensible Indian will agree that India’s tradition of tolerance is its basic strength”,  he says and adds:  “Tolerance is extremely important for our economic growth, especially given the kind of service-cum-innovative economy we wish to be.  This is a strength we have have and we should be very careful not to lose it.”

Rajan also lays down another basic requirement for rapid economic progress --  “Freedom of thought and expression is essential to foster innovation and encourage risk”.

He points out that “The history of independent India clearly shows that the country’s best economic phases have come when society is most open”.

Having viewed developments from abroad over the year gone by, Rajan has come to the conclusion that “Global investors have started worrying about a perceived lack of tolerance in India that could derail economic growth”.

In this context, he takes note of the landmark Supreme Court judgment ruling privacy as a fundamental right -- “this has in effect expanded the realm of tolerance for certain kinds of behavior”.  

India he feels does not move in a linear way, it is too complex for one- dimensional growth.  That is why the Supreme Court judgement on privacy arouses hope.  He said: “I think that is a very important judgment and an indication that there are many ways, many directions in which we are moving as a country”.

There is another way at looking at India’s diversity,  the options before the country in terms of economic activity.  India is well positioned to leverage its strength in the Services sector.  All the more since major manufacturing companies have cut about 30 percent of their employees in 2016, which could rise to 40 percent this year.

However to make a big push in Services would need free, out-of-the-box thinking.  The most important revolution in India has to be the opening of people’s minds.

Rajan says:  "Remember that we have what we call the population dividend. A million new people entering the labor force every month. If we don’t provide these jobs that are required, you have a million dissatisfied entrants. And that could create a lot of social mischief."

Sep 16, 2017