DAYS after former RBI Governor Raghuram Rajan criticised the Government’s management of the economy, Union Finance Minister Nirmala Sitharaman hit back, saying the “worst phase” for India’s public sector banks was when Prime Minister Manmohan Singh and Rajan were at the helm of affairs.
Speaking at the Columbia University’s School of International and Public Affairs — Rajan had spoken at Brown University — Sitharaman said that although she was “grateful” to Rajan for having carried out the asset quality review of banks, it was important to look at how banks ended up inheriting bad loans.
“With due respect, I am not making fun of anybody, but I certainly want to put this forward for a comment…I have no reason to doubt that Dr Raghuram Rajan feels for every word that he is saying and I am here today giving him his due respect but also placing the fact before you that Indian public sector banks did not have the worst phase than when the combination (of) Dr Manmohan Singh and Dr Raghuram Rajan as Prime Minister and the Governor of Reserve Bank (of India) had. At that time, none of us knew about it. There was an asset quality review which Dr Raghuram Rajan did, which I am very happy, very grateful that he did, and I am sorry, can all of us put together also think as to what ails our banks today? Where has it been inherited from?,” Sitharaman said in response to a question.
“While economists can take a view of what prevails today or prevailed years ago, but I will also want answers for the time when Rajan was in the Governor’s post speaking about the Indian banks for which today to give a lifeline is the primary duty of the Finance Minister of India. And the lifeline-kind of an emergency has not come overnight,” she said.
On the question regarding Rajan’s recent comments about the present government being extremely centralised, Sitharaman said, “I’d like to say that very democratised leadership led to a whole lot of corruption. Very democratised leadership. The Prime Minister, after all, is the first among equals in any cabinet…you need to have a country as diverse as India with an effective leadership. A rather too democratic leadership, which probably will have the approval of quite a lot of liberals, I’m afraid, left behind such a nasty stink of corruption, which we are cleaning up even today.”
Sitharaman is in the US to attend the ongoing annual meetings of World Bank-International Monetary Fund. On Tuesday, she gave a lecture on ‘Indian Economy: Challenges and Prospects’ organised by the Deepak and Neera Raj Centre on Indian Economic Policies of the Columbia University. The event was also attended by Arvind Panagariya, former NITI Aayog Vice Chairman and Columbia University professor and Jagdish Bhagwati, Professor of Economics, Law, and International Relations at Columbia University and the Director of the Raj Center.
Rajan, as then RBI Governor, had initiated an asset quality review of stressed accounts across India’s banking sector in 2015-16, when several accounts were inspected to see whether the banks had recognised them properly and made suitable provisions. Banks subsequently had to earmark many accounts as non-performing, a move that resulted in a sharp increase in NPAs and a cascading impact on the bottomline of banks.
Sitharaman further said that loans were given based on phone calls during the period that Singh headed the UPA government and Rajan was at the RBI. “I do respect Raghuram Rajan as a great scholar who chose to be in the central bank in India at a time when the Indian economy was all buoyant…it was in his time that loans were given just based on phone calls from crony leaders and public sector banks in India till today are depending on government’s equity infusion to get out of that mire. Dr Manmohan Singh was the Prime Minister and I am sure Dr Raghuram Rajan will agree that Dr Manmohan Singh could have had a consistent, articulated vision for India,” she said in response to a question referring to Rajan’s recent comments on the current leadership in India “lacking a consistent and articulated vision” on achieving economic growth.
On trade negotiations with US, Sitharaman said: “I think trade talks would conclude sooner. The talks are going on very well…both sides are engaged with all commitment,” Sitharaman said.
On joblessness and the severe credit crunch, Sitharaman said she has, at no point, conveyed that enough had been done. “I shall keep responding to global developments as much as domestic developments. I shall keep responding to the macro as much as sectoral (needs). So, it’s a completely dynamic approach that this government has taken towards handling the economy”.
Asked about Nobel Laureate Abhijit Banerjee’s comments that the Indian economy “is doing very badly” and that when the economy is in a tailspin, one should not worry about monetary stability but about demand, she said the government is focused on boosting consumption and steps have been taken to push liquidity.