RBI rate hike: When Mauni baba takes onus for economic woes

India's PM Singh speaks during India Economic Summit in New DelhiVivek Kaul
It was one of those rare days when Mauni baba had decided to talk.
“What man Chidu you send these guys to the Reserve Bank and suddenly they decide to have a mind of their own,” he told Chidu, who was busy thinking about new ways to send out income tax notices to tax payers.
“Yes sir. I had great faith in the professor. But the first thing he did was raise the repo rate,” replied Chidu.
“It is the R effect,” explained Mauni baba. “First Reddy, then Rao and now Rajan. All from the South of the Vindhyas. And I thought Sikhs were a rebellious race. You know sadda haq aithe rakh and all that.”
“Yes, the three Rs were so humble and docile while they were in Delhi,” said Chidu. “Wonder what happened to them as soon as they landed in Mumbai.”
“Next time we will appoint my man Monty to the post,” said Mauni baba. “At least he will listen to me and stay silent.”
“Yes sir. That sounds like a great idea,” remarked Chidu. “Madam will also like it.”
“Also, we should move the Reserve Bank to Delhi, then it will be easier to keep the governors under control.”
“Brilliant idea sir ji,” responded Chidu. “There is too much independence in the Mumbai air. ” “But Nana ji hasn’t Rajan done the right thing by raising the repo rate,” said Mauni baba’s granddaughter, who had suddenly entered the room.
Arre beta,” said Mauni baba, looking lovingly at his granddaughter. “What do you know about all this?”
Nana ji, you know na I am studying economics at the University of Chicago.”
“Oh, yeah, your mother told me, but given that I have a country to run, I keep forgetting,” replied Mauni baba.
“Really?” said the granddaughter. “But I just heard Chidu uncle telling someone on the phone that you only do what Madam asks you to do.”
Arre beta. What are you saying? You must be mistaken. I did not say anything like that,” said Chidu, looking very embarrassed, as he got up from his chair.
“ Kya yaar Chidu. Sit down. Don’t worry. I have seen everything. I don’t get upset too easily,” said Mauni baba trying to reassure Chidu.
“So beta why do you think Rajan uncle has done the right thing?” asked Chidu, trying to divert attention from his gaffe.
“Uncle, one of my professors told us about Milton Friedman and his views on inflation. In fact, he quoted a paragraph out of Friedman’s book Money Mischief – Episodes in Monetary History.”
And do you remember that paragraph?” asked Chidu.
“Oh yes I do. Like all good Indian students, I am good at ratta maar.”
So what did Friedman write?” asked Mauni baba. “Tell us about it beta.”
““The recognition that substantial inflation is always and everywhere a monetary phenomenon is only the beginning of an understanding of the cause and cure of inflation…Inflation occurs when the quantity of money rises appreciably more rapidly than output, and the more rapid the rise in the quantity of money per unit of output, the greater the rate of inflation. There is probably no other proposition in economics that is as well established as this one,” is what he wrote,” came a long wielding response from the granddaughter.
“Wooh!” that was fantastic. What memory,” exclaimed Chidu. “Reminded me of Amitabh Bachchan.”
“Bachchan?” asked Mauni baba. “Wo kahan se aa gaya?”
“Sir. The little speech reminded me of what Bachchan once said.”
“What did he say?” asked Mauni baba.
You see the whole country of the system is juxtapositioned by the hemoglobin in the atmosphere
because you are a sophisticated rhetorician intoxicated by the exuberance of your own verbosity
“My name is Antony Gonzalves,” said Chidu, breaking into a jig.
“Shut up. The girl is trying to make a point,” said a rather irritated Mauni baba.
“Sorry sir.”
Haan beta. So what were you saying?”
Nanu, I just said that inflation is a monetary phenomenon, which means as the money going around in the financial system increases, so does inflation.”
“That’s right. And how can we control it?” asked Mauni baba, as the economist in him suddenly woke up.

We can control inflation by raising interest rates.”
“And the Reserve Bank has done the correct thing by raising the repo rate or the rate at which it lends to banks.”
“At higher interest rates people will borrow lesser given the higher EMIs they will have to pay.”
“And how will that make a difference?”
“Since people will borrow lesser, they will spend lesser as well. This will mean that a lower amount of money will chase goods and services, and that will bring inflation under control.”
“Wow!” blurted out Chidu. “Another economist in the family.”
Mauni baba was impressed. But he had to tell her the truth.
“Well beta. This needs a little more explaining,” he told her.
“Please tell me, I am all ears,” said the granddaughter.
“In 2007-08 the government spent Rs 7,12,671 crore. This year the number is expected to be Rs 16,65,297 crore or 133.7% higher. This has led to more money entering the economy and chasing the same amount of goods and services and thus driving up inflation.”
“As Friedman said?”
“Yes. Exactly like that. During the same period, the fiscal deficit of the government has risen by 327% from Rs 1,26,912 crore to Rs 5,42,499 crore. Fiscal deficit, as you would know, is the difference between what a government earns and what it spends.”
“Yes. So?” asked the granddaughter.
“The government makes up for this difference by borrowing money. With the mammoth increase in fiscal deficit, it has had to borrow more and more. This has crowded out the private borrowers.”
“I know where you are getting at,” said the granddaughter with a huge smile on her face.
“Hence, every time Chidu uncle asks banks to cut interest rates on their loans, I have a good laugh, and so should you, from now on. With the government borrowing more, there is a lower pool of money for the private borrowers like banks to borrow from. Hence, they need to offer a higher rate of interest on their deposits. And this means a higher rate of interest on loans.”
“A large part of inflation has been because of food. In fact, half of the inflation over the last five years has been because of a rise in food prices. As per the latest wholesale price inflation numbers, the price of onion has risen by 323% in the last one year. Vegetable prices during the same period went up by 89.37%. Fruits were up at 13.54%. And all in all food prices were up by 18.4% in comparison to the same period last year.”
“So the RBI cannot do anything about inflation. It does not matter if they hike repo rate or not,” explained Mauni baba. “Interest rates will not fall unless the government controls the fiscal deficit. And onion prices won’t fall unless Power Man wants them to.”
“So why don’t you just control the fiscal deficit Nanu?” asked the granddaughter.
“Well, that is for Madam to decide.”
Beta, we are running many programmes for the poor. And that is why our fiscal deficit is high,” said Chidu.
“Yes, I know all about those subsidies. You offer subsidies to those who drive diesel cars and people who use cooking gas cylinders. Since when did they become poor?” asked the granddaughter.
“Not like that beta. We offer food subsidies to the poor.”
“Oh yes, I read about that Chidu uncle. You sell food through the public distribution system where more than 40% of the food gets siphoned off.”
Beta, Madam has a vision for this country. You are too young to understand that, now you should go and let your Nanu and me discuss serious economic matters.” The granddaughter soon left the room.
“She will turn out to be an excellent economist one day,” Mauni baba said proudly with a big smile on his face.
“Well. And what was all that you were telling her?” asked Chidu, a tad irritated.
“All this bit about the government being responsible for inflation and the Reserve Bank not being able to do anything about it.”
“Yes. Isn’t that how it is?”
“Madam, won’t like this.”
“I am going to go and tell her and the shehzada everything.”
Yuvraaj bolo Chidu.
“What you are not afraid if I go and complain to Madam?” asked Chidu, not being able to figure out how Mauni baba continued to be so jovial.
“You might lose your job.”
“Chidu, I thought you were a smart man.”
“As in?”
“Well, what is my name?”
Mauni baba,” said Chidu. “But what’s that got to do with this?”
“Are you really that dumb?” asked Mauni baba. “Well who is going to believe you when you go and tell them that I spoke for as long as I did.”
“I think you have been spending too much time in Delhi. It’s time to go to Mumbai, Chidu,” said Mauni baba, having the last laugh.
The article originally appeared on www.firstpost.com on October 30, 2013 

(Vivek Kaul is a writer. He tweets @kaul_vivek) 

Will Ramdev succeed in politics? History isn’t on his side

Vivek Kaul

Some two and a half years back I had told an aunt of mine that Baba Ramdev was getting ready to enter politics. My aunt, who recently retired after nearly four decades of teaching in the Kendriya Vidyalaya system of schools, wouldn’t agree with me. “He just wants us to be healthy,” was her reply.
I had been following Baba Ramdev’s early morning yoga classes on television regularly for almost six months in a bid to control my ever expanding waistline. The aasanas that Baba showed over that period remained more or less the same. But the commentary that accompanied those aasanas had gradually become more and more political.
In that context, I am not surprised at Baba’s decision to take the Congress party led United Progressive Alliance (UPA) Government head on and ask his supporters not to vote for the Congress in the coming elections.
Baba Ramdev may not form his own party in the days to come. He may not even contest any elections but by asking people not to vote for the Congress he has more or less signaled his entry into politics.
So the question that arises now is that will he succeed at what he is trying to do or will he just be a flash in the pan and disappear from the limelight in a couple of years?
Babas and religious gurus have always been an essential part of the Indian political system. Dhirendra Bramhachari was known to be close to Indira Gandhi. Chandraswami was known to be close to PV Narsimha Rao.
Long time Gandhi family loyalist Arjun Singh was known to be close to the Mauni Baba of Ujjain. Mauni Baba even took credit for Arjun Singh surviving a massive heart attack in 1989.
As Rashid Kidwai writes in 24 Akbar Road – A Short History Behind the Fall and the Rise of the Congress “The doctors at Hamidia Hospital in Bhopal had almost given up on him( Arjun Singh) when a call from Rajiv Gandhi ensured a timely airlift to Delhi’s Escort Heart Institute. His spiritual guru, Mauni Baba of Ujjain, took credit for the miracle. The guru, who had taken a vow of silence, reached Delhi and shut himself off to conduct various yagnas for his health. As Union Communications Minister, Singh had given the guru two telephone connections. The act promoted a Hindi daily to run the headline, ‘Jab Baba bolte nahin, to do telephone kyun?
Like Singh, the various politicians took care of their respective gurus. Indira Gandhi ensured that Dhirendra Bramhachari had a weekly show on Doordarshan to promote the benefits of yoga. Several politicians were known to be close to the Satya Sai Baba as well. His trust being a publically charitable trust did not pay any income tax.
So babas and religious gurus have always been close to Indian politicians and politics. They have been the backroom boys who have rarely come out in the open to take on the government of the day head on.
But there are always exceptions that prove the rule. One such person who did this rather successfully for a brief period was Sadhvi Rithambara. Her fiery speeches in the early 1990s were very fairly popular across the length and breadth of North India and Bihar. I remember listening to one of her banned tapes before the demolition of the Babri Masjid. It was full of expletives and exhorted the cause of a Ram Mandir being built at the site of the Babri Masjid in Ayodhya.
As Haima Deshpande writes in the latest edition of the Open “By the early 1990s, the Sadhvi was scandalising secular India with her rabble-rousing along a campaign trail to replace Ayodhya’s Babri Masjid with a Ram Mandir. At first, her anti-Muslim tirades were full of expletives, exhorting Hindus to reclaim what she said was rightfully theirs. After a brush with the law, she toned herself down, but her message was roughly the same. While the entry of Parsis to India was like sugar sweetening milk, she would say, that of Muslims was like lemon curdling the country (delivered with a certain inflexion in Hindi, that verb could sound rather crude).” The Sadhvi is now known as Didi Maa and runs a home for destitute women and abandoned children which was set up in 2002, Deshpande points out.
What these examples tell us is that Babas and religious gurus have never operated in the openly in the open sesame of Indian politics. And when they have they have not survived for a very long period of time.
At a broader level people who have been successful in other walks of life have rarely been able to transform themselves into career politicians. When these people have tried to enter politics they have either been unsuccessful or have retreated back very quickly.
Let’s take the case of Russi Modi, the man who once played the piano along with Albert Einstein, when the great physicist was playing the violin. Modi was the Chairman and Managing Director of the Jamshedpur based Tata Iron and Steel Company (TISCO, now known as Tata Steel). After retiring from TISCO, Modi fought the Lok Sabha elections from Jamshedpur and lost.
Amitabh Bachchan won the Lok Sabha elections from Allahabad in 1984 defeating H N Bahuguna. He resigned three years later. Dev Anand unsuccessfully tried to form a political party in the late 1980s. Rajesh Khanna and Dharmendra were also a one term Lok Sabha members. Hema Malini has achieved some success in politics but she is used more by the BJP to attract crowds rather than practice serious politics. The same stands true for Smriti Irani of the Kyunki Saas Bhi Kabhi Bahu Thi fame.
Deepika Chikalia, the actress who played the role of Sita in Ramanand Sagar’s Ramayana, was a one time member of Lok Sabha from Baroda. So was Nitish Bhardwaj who played Krishna in BR Chopra’s Mahabharat, from Jamshedpur.
The only state where film celebrities have successfully made it into politics and remained there is Tamil Nadu. Andhra Pradesh has the isolated example of NT Rama Rao who was successful at politics as well as being the biggest superstar of Telgu cinema. But more recently when the reigning superstar of Telgu cinema, Chiranjeevi, tried to follow NTR, he was unsuccessful. He had to finally merge his Praja Rajyam party rather ironically with the Congress.
Imran Khan Niazi, the biggest sports icon that our next door neighbour Pakistan ever produced formed the Tehreek-e-Insaf party in 1996. When Imran Khan started making speeches before the 1997 elections, his rallies got huge crowds. But the party failed to win a single seat in the election, despite the fact that Imran Khan contested from nine different seats. He lost in each one of them. But to Khan’s credit he still hasn’t given up.In India cricketers like Manoj Prabhakar and Chetan Sharma have unsuccessfully tried to contest elections.
The broader point is that people from other walks of life haven’t been able to successfully enter politics if we leave out the odd filmstar. There are several reasons for the same. Their expertise does not lie in politics and lies somewhere else, something Amitabh Bachchan found out very quickly. Politics also requires a lot of patience and money. This is something that everybody doesn’t have.
Also some of these successful people come with stories attached with them. Ramdev’s story was “practicing yoga can cure any disease”. Those who have seen his yoga DVDs will recall the line “Karte raho, cancer ka rog bhi theek hoga“. This story helped him build a huge yoga empire with an annual turnover of over Rs 1000 crore. The story was working well, until Ramdev decided to diversify, and enter politics.
As marketing guru Seth Godin writes in All Marketers Are Liars: “Great stories happen fast. They engage the consumer the moment the story clicks into place. First impressions are more powerful than we give them credit for.”
So Ramdev’s success now clearly depends on the perception that he is able to form in the minds of the people of this country. Will they continue to look at him as a yoga guru who is just dabbling in some politics? Or will they look at him as a serious politician whose views deserve to be heard and acted on? Also will Baba Ramdev want to continue investing time and energy in the hurly-burly world of politics? That time will tell.
But what about the all the people that Baba Ramdev has been able to attract, you might ask me? Crowds as Imran Khan found out are not always a reflection of whether an individual will be successful in politics. And history clearly is not on Ramdev’s side.
(The article originally appeared on www.firstpost.com on August 15,2012. http://www.firstpost.com/india/will-ramdev-succeed-in-politics-history-isnt-on-his-side-418952.html)
(Vivek Kaul is a writer and can be reached at [email protected] )