India's New Central Banker can't be a Messiah to a Failing State

India has got one of the most highly respected diasporas in the globe with the US Indian community being the richest immigrate community. Indians tend to do much better outside the country, as India has cumbersome regulations and constraints which stifle talent and hard work. A top German publication recently came down hard on the Indian government saying that this country promotes mediocrity over meritocracy and will probably remain a basket case like in the past.

I don’t disagree with most of the commentary given the past 5 year performance, where corruption has been given a free reign by the government which mainly consists of corrupt and arrogant dynasts. The Congress PM aspirant seems more of a dilettante than a leader of the world’s second largest country. Almost 30-40% of the parliamentarians are relatives of the existing or past politicians. The ruling family has made its cooks and drivers as members of parliaments with zero protests. Most of the country is feudal in nature with 600 million living on $2 a day.

The politicians are more interested in giving hand-outs rather than investing on education, health or infrastructure. Free laptops, grain, TVs have become the main manifesto highlights rather than an improvement in the economy. Slow growth means there is no money for this largesse implying a lot of money printing. This has led to a collapse in the currency leading to increased inflation pressures.

In the midst of these problems, the new central bank governor has been made a messiah by the hype creating mainstream media. The structural problems are too deep and fixed in nature for a central bank governor to change. This has to be done by the government which seems utterly incapable and unwilling to do so. The leaders of the UPA are so compromised that they have no moral authority left to change the system. All the top leaders are mired in one scandal or another. The PM has become a figure of ridicule and there is little/zero confidence left in him. The government is a lame duck one trying to get another term by passing ill devised, bankrupting but vote winning bills. Even as the country lurches into the biggest crisis after 1990, the UPA has passed a very costly Food Bill. Though laudable, the intention behind the scheme is totally insincere. The delivery mechanism is one of the most corrupt arms of the government. No mean feat considering how corrupt the government is!!!!! The funding has also not been decided and there is also no plan on how the agri production will be raised to meet this huge target.

It seems we have not reached the crisis end point as the politicians are still doling out money as if there is no tomorrow. There is some concern about the failing economy but not enough to prevent hare brained schemes. Raghuram Rajan faces a tough tenure and will have a hard time managing the monetary policy which needs to be tightened and loosened at the same time.