Raghuram Rajan is currently having what I would like to call an “aaya aaya toofan, bhaga bhaga shaitan” moment. For those who are not as fond of trashy 80s cinema as I am, this needs some explanation. “Aaya aaya toofan, bhaga bhaga shaitan (Here comes Toofan, there runs the devil),” is a song from the Amitabh Bachchan starrer Toofan, which released in 1989.
The film has a character called Toofan (played by Bachchan) who plays a superhero, fighting evil. And the song keeps playing in the background whenever Toofan is out taking on the evil forces.
Rajan took over as the twenty third governor of the Reserve Bank of India (RBI), yesterday. He had his first press conference at 5.30pm in the evening. In this press conference he outlined a stream of measures that he plans to take over the next few months.
Within seconds of his press conference ending television channels, started to go gaga over his performance. The feeling one got while watching was that all of India’s economic problems have/will come to an end because Raghuram Rajan had taken over as the governor of the RBI.
This excitement seems to have rubbed off on the newspapers as well. The Economic Times has compared him to James Bond. The Times of India called Rajan’s entry “a big bang entry”. Business Standard said that “Rajan hits the ground running” and so did The Indian Express. Firstpost has called Rajan a Rockstar.
The impact of Rajan’s maiden performance has been seen great. The rupee has risen against the dollar and is currently quoting at 66 to a dollar. The stock market has rallied around 400 points, as I write this. This is in response to a slew of measures that Rajan announced yesterday.
Rajan announced plans to internationalize the rupee, several steps to improve the inflow of dollars into India and improve exports. He also said that the RBI would allow ‘good’ banks to open branches without approaching the RBI for a license. To control the appetite Indians have for gold, he announced that the RBI would soon launch bonds indexed to consumer price inflation.
Some of the capital controls introduced sometime back to prevent the rupee from falling have also been done away with. Individuals will be allowed to spend more than $75,000 per year abroad, if the money is being spent on education and medical treatment. Rajan also announced plans for a nation wide bill payment system for payment of utilities like medical bills and school fees. A string of technical measures to shore up the value of the rupee against the dollar, were also announced. All in all, a great first day at work.
Having said that, there isn’t much that Rajan can do to improve the major ills that are plaguing the Indian economy. Let’s start with inflation. As Rajan said yesterday “the RBI takes its mandate from the RBI Act of 1934, which says the Reserve Bank for India was constituted “to regulate the issue of Bank notes and the keeping of reserves with a view to securing monetary stability in India and generally to operate the currency and credit system of the country to its advantage.””
Hence, the primary role of the RBI is to ensure monetary stability. Or as Rajan put it “That is, to sustain confidence in the value of the country’s money. Ultimately, this means low and stable expectations of inflation, whether that inflation stems from domestic sources or from changes in the value of the currency, from supply constraints or demand pressures.”
There isn’t much that the RBI can do to control inflation. The primary reason for the same is that the government of India is the main creator of inflation. The expenditure of the government has jumped considerably over the last few years and this has created inflation. As Ashok Gulati and Shweta Saini write in a research paper titled Taming Food Inflation in India “RBI has indicated time and again that government needs to rein-in the fiscal deficit before it can reduce interest rates,else, too much money in the system will be putting further pressures on prices in general and food prices in particular… The Economist in its February 2013 issue highlights that it was the increased borrowings by the Indian government which fuelled inflation and a balance-of-payments gap. It categorically puts the responsibility on the government for having launched a pre-election spending spree in 2008, which continued even thereafter.”
There is nothing that the RBI can do about this. With many state elections due this year and a Lok Sabha election due towards the middle of next year, the chances are the government is likely to continue spending big money. Several boondogles to influence the voters, might be on their way.
Also, a lot of the inflation created by the government shows up as food inflation, on which RBI has no control. As Gulati and Saini write “High food inflation, which has averaged 10 percent during FY 2008-09 to December 2012, has been a major concern for policy makers in India.” Even after December 2012, food inflation continues to be higher than 10%.
The RBI has tried to control high inflation by maintaining interest rates at high levels. One school of thought goes that since the RBI cannot do much to control food inflation, so it might as well cut interest rates. The risk here is that low interest rates might fuel other kinds of inflation. So, it remains to be seen whether Rajan is ready to take on that risk or not.
High inflation can come in from other areas which Rajan has absolutely no control over. It can come from rising oil prices due to threat of an American attack on Syria. As an international fund manager told me earlier this week “if that happens(i.e. American does attack Syria) we can have oil prices touching even $150 per barrel.” In that scenario, inflation will spike and that will have a huge impact on economic growth, something an RBI governor has no control over.
Also, if the Federal Reserve of United States, RBI’s American counterpart, decides to go slow on printing money, that will lead to further economic problems in India. The Fed has indicated in the recent past that it plans to go slow on the $85 billion it has been printing and pumping into the American financial system every month, to keep interest rates low. The hope is that at low interest rates Americans will borrow and spend more, and that will help revive the American economy.
The danger of course is that all the money being printed and pumped into the financial system can create high inflation. So at some point of time the Federal Reserve needs to start going slow on printing money.
If the Federal Reserve decides to go slow on money printing, as it has said in the recent past, interest rates in America will go up. This will lead to foreign investors selling out of India and other emerging markets. This will put further pressure on the rupee against the dollar. As the rupee will lose value, it will mean that our main imports i.e. oil, coal, fertilizer, palm oil etc, will become costlier, leading to a rise in inflation. If this scenario plays out, there is not much that Rajan can do about it. The RBI can sell dollars and buy rupees to stop the rupee from depreciating against the dollar. But it is worth remembering that the RBI does not have an unlimited supply of dollars.
Another worrying factor is the slowdown in economic growth and the impact that it will have on government borrowings. The government expects the GDP to grow by 13.4%(in nominal terms) during this financial year (as per the annual budget). This is unlikely to happen.
As Dylan Grice, formerly with Societe Generale and now the editor of the Edelweiss Journal wrote in a February 2010 research report titled Government hedonism and the next policy mistake “If I’m a finance minister mulling out how much money I should be borrowing, I want my GDP growth (and therefore my tax revenue growth) to pay coupons (i.e. interest) on any debt that I take on today…If the interest rate is higher than GDP growth, my incremental tax revenue won’t cover interest payments. I’ll be in deficit and I’ll have to issue more debt to plug the gap and my debt ratio will rise.”
What this means is that the tax revenue collected by the government should be rising at a rate which is good enough to pay the interest on the accumulated debt. If that does not happen, the government will have to borrow more money to make its interest payments. And that is not a good sign. The government will either end up with a higher fiscal deficit or it will have to cut its expenditure in other areas to maintain the fiscal deficit. Fiscal deficit is the difference between what a government spends and what it earns. India is in that kind of a situation right now and there is nothing that Rajan can do about it.
Also, to repeat a point that is made often, India’s economic growth is being hurt by the poor physical infrastructure that we have. The country needs better roads, more ports, better railway infrastructure and so on. These are things the RBI governor cannot do much about, even though as Rajan said the RBI has “additional tools to generate growth”.
All this is not to suggest that Rajan is not a good choice for the governor’s job. He is an excellent choice given his impeccable credentials, but expecting him to do miracles is unjustified.
To conclude, let me quote what Jerry Tsai, a famous American fund manager had to say about the penchant of the media to create heroes. “And I can say this from experience: the trouble with getting a little bit of good publicity is, when something goes wrong they love to kill you on the way down. The media like to build things up so they can tear them down.” (Source: What Goes Up – The Uncensored History of Modern Wall Street by Eric J Weiner). Rajan should keep that in mind as he goes about his business of rescuing the troubled Indian economy.
The article originally appeared on www.firstpost.com on September 5, 2013
(Vivek Kaul is a writer. He tweets @kaul_vivek)
We all have our favourite Amitabh Bachchan movies. Most people who grew up in the seventies feel that Deewar was his best performance. The eighties lot likes to talk about Agneepath which was released in 1990. Some others talk about his comic timing in Amar Akbar Anthony and Chupke Chupke. The women admire his rather innocent performance in Anand. A dear friend of mine refuses to see the Don movies starring Shahrukh Khan on the premise that nobody could play Don like Bachchan had.
More recently the audience found him rather endearing in Paa, where he played a reel life son to his real life son Abhishek Bachchan.
My favourite Amitabh Bachchan movie is a rather unknown one which came and went at the end of the eighties. Unlike Agneepath which was later recognized as a classic, the movie still hasn’t found the audience that I feel it deserves. And unlike other late eighty Bachchan duds like Prakash Mehra’s Jadugar, Ketan Desai’s Toofan and Manmohan Desai’s Ganga Jamuna Saraswati, I haven’t seen it play on any of the movie channels, either.
The movie was called Main Azaad Hoon and it hit the movie screens in 1989. This Tinnu Anand directed film was a copy of the 1941 Hollywood movie Meet John Doe directed by Frank Capra. (The Wikipedia entry of Main Azaad Hoon calls it a remake of Meet John Doe but that’s something I am really not sure of. In the late 1980s nobody officially bought remake rights in Bollywood, they just copied from wherever they wanted to). The movie also has my favourite Bachchan song “kitne bazoo kitne sir, gin le dushman dhyan se, haare ga wo har baazi jo khele hum jee jaan se”, one of the last songs that Kaifi Azmi wrote.
Main Azaad Hoon starts with Shabana Azmi who plays the role of a female journalist called Subhashini. She writes a column in which she reproduces a letter from someone she calls Azaad. Azaad, writes Subhashini, is going to commit suicide on January 26, from the highest building in the city.
The twist is that there is no Azaad. It is just a figment of Subhashini’s imagination. The newspaper has a new owner and he has asked the editor to fire Subhashini. Subhashini on the last day of her work writes the letter from Azaad just for the lark of it.
The story improves the circulation of the newspaper dramatically. The newspaper owner has political ambitions of his own, asks Subhashini to stay back and keep the Azaad story going. This requires Subhashini to catch hold of someone who can play Azaad.
She gets hold of unemployed youth who has landed up in the city and doesn’t even have money to buy food. Reluctantly that man with no name agrees to play the role of Azaad just once, for a few rupees. But his first performance as Azaad is a huge hit with the people who have come to hear him and he is persuaded to keep going.
So the story evolves. In a rather tragic end Azaad does commit suicide on January 26, as Subhashini had written in her column. (Here is where the copy was different from the original. In Meet John Doe, Gary Cooper who plays John Doe, is persuaded not to jump).
The movie obviously bombed at the box office. A story of a newspaper journalist and an owner keeping a false story going to bid up the circulation of the newspaper as well as push the political ambitions of the newspaper owner, was probably 20 years ahead of its time. Also those were the days when Amitabh Bachchan beat up the villains to solve all the problems in the world. And here was committing suicide like a coward. This was a sure-shot recipe for disaster. And the movie sank in the theatres on the very first day of its release.
But the story of Main Azaad Hoon in which a journalist writes about an individual who does not exist and keeps the story going when the circulation of the paper goes through the roof, is very relevant in the times that we live in.
This is an era where the pressure on journalists and editors who work for newspapers and primarily television channels to get exclusive news and to break news before anyone else does is huge. The pressure is so huge that at times decent behaviour does not have any place in the profession.
The most recent example is that of Gagan Narang winning the bronze model in the London Olympics. The news channels were waiting at his home as his parents watched him shoot. As soon as he won all hell broke loose and every television journalist wanted his father to answer the “aap kaisa mehsoos kar rahe hain” question.
The pushing and shoving could be seen “live” across all the television channels. Several journalists could be heard shouting at the top of their voices trying to attract the attention of Narang senior to their questions. It is an entirely different issue that none of the journalists present had anything different to ask other than “aap kaisa mehsoos kar rahe hain?”But everybody wanted an exclusive none the less. For all those who watch television news regularly, this shouldn’t come across as a surprise.
Another recent case where the media reported wrongly in order to keep a story hot and get you, me and everyone else, emotionally involved, was the case of the Bhattacharya kids in Norway. Arnab Goswami of Times Now caught onto to the story and kept shouting at the top of his voice like his normally does, and turned it into an issue of national importance.
Abhigyan and Aishwarya, children of Anurup and Sagarika Bhattacharya, had been put under foster care by the Norway government under the aegis of its Child Welfare Service (CWS). Goswami with almost no research of why this had been done presented a one sided picture of the entire story blaming the Norwegian authorities all along. Once Arnab was at it, others had to follow suit or risk losing their TRPs (television rating points).
As The Hindu wrote “It (the television media) gave the impression that the Bhattacharya children were separated from their parents only because they were not well-dressed, slept along with their parents and not in separate beds, were fed by hand, and so on. They saw in the action what they called a “cultural bias” or “cultural discrimination.” The other side — the real issue of universal child rights — was totally ignored.”
But that as The Hindu later found out was not really the case. It sent its Europe correspondent to investigate the case and the truth that emerged was much more complicated than the way it was being presented on television.
“After reviewing the files and interviewing the family as well as CWS officials, the picture that emerges is a complex one that defies easy pigeonholing. The strains of negotiating a foreign culture and environment are evident — both for the Bhattacharyas and for the Norwegian authorities — but the fact that the family needed assistance is undeniable. The parents have said they themselves approached the kindergarten for help when the older child showed autism-like symptoms, now diagnosed as Attachment Disorder. The mother, too, said she was suffering from post-partum depression and was unable to cope in the Norwegian cold, with a husband who worked long hours. Though littered with cultural misunderstandings and even insensitivity, all the reports submitted by care personnel working independently of each other saw a problem in the mother’s refusal to admit the seriousness of the boy’s condition or to accept help,” the paper wrote in an editorial on March 20.
But if Goswami and others of his ilk had presented both the sides, the story wouldn’t be “sexy” enough to drive the TRPs. It wouldn’t have got all of us, the emotional fools that we are, emotionally involved.
To give Goswami and the television channels their due they did play a huge role in helping the family unite and ensuring that the kids came back to their parents. But the same cannot be said about the Guwahati molestation case. The truth that seems to be coming out in this case is that Gaurav Jyoti Neog, the reporter of the news channel News Live, which broke the story, may have instigated the molestation in the first place.
As the newsmagazine Tehelka reports in its latest cover story “The raw footage shows the other girl being chased by a group of boys. Someone shouts: “Catch her, make her naked, make her naked, catch her.” This voice is strikingly similar to the voice the channel admits belongs to Gaurav. (The authenticity could only be proved by a forensic examination, but ex facie it does appear to be Gaurav’s) This can be deduced from the circumstances around the clippings. In a situation where there is a lot of noise in the background, it is likely that the most audible voice will be of the person holding the phone. Also, most of the people voice matches the earlier male voice that News Live had itself identified as belonging to Gaurav.”(you can read the complete story here)
What Goswami and his channel did was not very different from what the other news channels do all the time though the degrees vary. The point I am trying to make is that when the race for TRPs is so strong once in a while we will have situations where reporters and editors will try and create news out of nothing. The character played by Shabana Azmi did that in Main Azaad Hoon. And the same thing seems to have happened with Gaurav Neog and News Live in Assam. There are no easy solutions to this problem. Some experts have asked for increased government role in policing the media. But the thing is that most of the regional television news channels are run by politicians or people acting as fronts for these politicians. Given this situation an increased role for the government in policing the media might lead to the politicians favouring their own channels over others. The News Life Channel which is now accused of instigating the molestation in Guwahati is promoted by the Health Minister of Assam and run by his wife.
In this scenario the only way out for the television channels is to behave more responsibly and not to create news and crisis when none exist. Also they need to realize that shouting at the top of their voices doesn’t tend to increase the importance of the issue. Now only if Mr Goswami were listening!
(A slightly different version of the article originally appeared on www.firstpost.com on July 31,2012. http://www.firstpost.com/india/the-indian-media-and-its-main-azaad-hoon-syndrome-398743.html)
(Vivek Kaul is a writer and can be reached at [email protected])