The Hindu Business Line : Raghuram Rajan warns against going back to ‘old system’

Chennai, Dec. 19 Dr Raghuram Rajan, economist and member of the Prime Minister’s Economic Advisory Council, on Friday warned against the dangers of going back to the old system of economic management, where enterprises are State-owned.

Speaking at ‘Pan-IIT 2008 Global Confernce’, a meeting of IIT alumni here, Dr Rajan noted that capitalist system is indeed crisis prone, as many economists have pointed out over the years. However, it is also a system which promotes growth and enables a country to be in a much better shape, despite crises. It is a system that enables a country to grow, within one or two generations, from a third-world economy to a first-world economy.

Dr Rajan, a former Chief Economist of the International Monetary Fund, pointed to the growth of North Korea and South Korea. “South Korea has faced four crises since the 1960, North Korea has faced none,” he said, pointing out that South Korea is today a developed country, whereas the North is way below in terms of development. “Which one would you rather be?” he asked.

Poor education

The problem with our fellow Indians is that they have been incapable of taking advantages of the capitalist system of economic management because of their poor education.

Over the years, India had become a place of political patronage, where the politician became the key provider — because the system could not do it on its own. As a result of this, it became difficult to get good governance into the system, he said.

Dr Rajan, himself an alumnus of IIT-Delhi, said that IIT-ians the world over need to stand up for what kind of system that India ought to follow.

In his speech, he dwelt at length on the global economic crisis, tracing its roots to the Asian crisis of the late 1990s. Stung by the crisis, many countries shrank their development budgets, with an eye on fiscal balancing, and became providers of investments rather than consumers.

Investments flowed to developed countries and created first a dot.com boom. After the unsustainable boom went bust, corporates in developed countries stopped being consumers of investments.

As a consequence of funds flowing into the developed countries and with governments and companies not willing to absorb the investments, these investments went to households —which resulted in the US becoming the demander of the world’s goods and services. Asset prices, mainly housing assets, got inflated.

Risk spread

Dr Rajan then spoke of the spreading of risks around the world through financial instruments and when the bubble burst, the risks spread across the world.

What should India do now? Answering the question, Dr Rajan said that in India, ‘consumption’ was not a big issue, as people do not stop consuming. The issue is shrinking of investments. As such, the need of the hour is to generate investments, making sure that interest rates come down and credit flows to the industry.

The government, he said, should not only make finance available, but also ensure that infrastructure projects are completed.

The star speaker

Dr Raghuram Rajan, Economic Advisor to the Prime Minister and Prof of finance at the University of Chicago, was easily the star speaker of the day with the 3,000-seater at the IIT Madras almost full at the plenary session in the evening of the first day of the pan-IIT global conference.

Dr Rajan, an alumnus of IIT Delhi himself, prefaced his speech by saying that when he was an IIT student they used to go around to tie up sponsorship deals but were thrown out summarily.

“We knew the reason later, because all the CEOs then were either from St. Stephen’s or Loyola or Presidency; the IIT-ians were still working their way up. I’m glad that there are at least 300 IIT-ians who are CEOs of companies now,” said Dr Rajan, to thunderous applause from scores of IIT alumni assembled.

Parallel sessions

Apart from the plenary sessions with heavyweight speakers, there were parallel sessions going on in the various halls of IIT’s vast campus. One such with an eclectic gathering comprising tennis star Vijay Amritraj, cricketer Anil Kumble, dancer Anita Ratnam, film-maker Rajiv Menon, journalist Sir Mark Tully and the CEO of ICICI Prudential Life Insurance, Ms Shikha Sharma. Needless to say the man most mobbed was Kumble, looking cool in a white jacket. Students and alumni alike queued up for his autograph and he had to be literally dragged away on to the stage. The topic of discussion was transformed by choice; inspire by example.

Amritraj, the moderator

Vijay Amritraj was the moderator for the discussion and introduced all the guests, except Kumble. As if he needed an introduction! Anyway, the organisers gently interrupted Amritraj to introduce Kumble as well. And, he did, reading out that Kumble takes his name from a village called thus near Kasaragod in Kerala. At this point. the articulate Amritraj brought the house down when he turned to ask Kumble if they named the village after him and not the other way around. Turning to Sir Mark, he asked if he could call him just Mark and he graciously agreed.

‘Mayors need power’

At a session on infrastructure, the Infosys CEO, Mr Nandan Nilekani, blamed the lack of powers for Mayors of Indian cities as a major reason for poor infrastructure in the metros. He contrasted the role of mayors after 9/11 in New York with 26/11 in Mumbai. “Whereas you saw New York Mayor Rudy Guiliani taking charge immediately after the incident, there was no sign of the Mumbai Mayor after the terror attacks.”

Walk around to stay ‘fit’

With the various halls of the parallel sessions spread out all over the vast IIT Madras campus, delegates had to walk around a bit if they wanted to switch tracks between sessions. Overheard, a large bellied IIT alumni commenting that apart from fun, games and sessions, the organisers wanted to get them fit as well.

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