19 banks violated RBI and Foreign Exchange Management Act (FEMA) guidelines in 2008 by selling engineered Forex derivatives to the Indian Corporates. This led to huge losses to investors in India while profiting the foreign banks. Most shocking was that the Indian investigators also found that RBI officials were working with some foreign institutions and Indian banks and had misled everyone by making projections that the Rupee will strengthen without any evidence! The situation that this led to created a rip off of the ordinary small and medium companies!
The scam was as big as Rs 32,000 crores! This scam was simply pushed out into the oblivion for over 3 years by UPA-II. On January 4, 2012, the Indian Parliament’s Public Accounts Committee (PAC) asked the Ministry of Finance to explain the selling of forex derivatives to the Indian exporters and importers. Ordinary importers, exporters and firms selling foreign exchange derivative contracts were the biggest victims! The CBI’s affidavit laid out the reasons thus.
“The RBI has been monitoring the gross mark-to-market (end-to-end) losses incurred by the banks. As on December 2008, the gross mark-to-market gains (that correspond to losses incurred by consumers) of 22 banks that were in the business of derivatives work out to Rs 31.719 crore,” says RP Luthra, advocate, Delhi High Court.
However, many believe that the loss to exchequer and to the ordinary trading firms in India was FAR more.
This figure, however, is contested by Pravajan Patra, an eminent economist, in a PIL filed in the Orissa High Court. His contention is that the total value of derivative contracts sold in India and approved by the RBI is $3 trillion, based on the statement of the then finance minister P Chidambaram in the Rajya Sabha. Compare this to the total GDP of India, which is not more than $1 trillion, or its total export and import (including oil bills), that do not exceed $500 billion a year on average. The fluctuation in the value of the dollar during the period in question in 2008, however, was Rs 8.50-10. If this difference is multiplied by even the (conservative) estimate proposed by Chidambaram, that of $3 trillion, we end up with a loss in excess of Rs 25 lakh crore.
Despite such huge losses, the Department of Financial Services, Ministry of Finance, wrote in a letter dated September 28, 2011, when asked to recover the huge losses.
“The specific action does not come under the purview of the Reserve Bank of India.”
This is the kind of mess that Raghuram Rajan, the erstwhile Governor of Reserve Bank of India walked into when he came to lead India’s Central bank! That is why it is not just intriguing but indeed incredulous that someone of his stature – was nominated for the Nobel for Economics this year – not just did not ever talk about the economic mess that the RBI – which was working in connivance with foreign institutions – but has behaved as though such a huge betrayal never even occurred in India!
Yet, today, in Delhi when he was asked about the phenomenon of “elected autocrats” – he had a lot of wisdom to share!
“It is worrying. It is often people, who appeal to a certain segment of society, have a very strong following. What happens then is that the potential for mistakes increases. You are not listening to the broader electorate. ‘These are the people who elected me and I am going to listen to their will and wishes.’ And you take countries down the wrong path sometimes.”
Make no mistake. For the current government’s critics and the opposition, the “elected autocrat” phrase is a euphemism for the current Modi Government. Because it suits their characterization of Modi. Strangely and shockingly, not only is Raghuram Rajan lending credence to the narrative of the opposition now, but he was doing so even at the height of the “Intolerance” drama that the opposition manufactured prior to the Bihar polls.
Amidst the intolerance debate, Raghuram Rajan gave a speech in which he emphasised the need for tolerance, even as the Modi government was busy saying there’s no intolerance in the country. Rajan said tolerance of ideas and dissent was necessary for start-ups and economic activity. “The first essential is to foster competition in the marketplace for ideas. Without this competition for ideas, we have stagnation,” he said.
A man who oversaw decidedly the most corrupt and plundering regime ever to rule from Delhi in the last 100 years – the UPA-II – while he twiddled his thumbs and followed along with his friend, the plunderer-in-chief – P. Chidambaram – suddenly has a lot of wisdom to share on tolerance and integrity!
Not once. Not even ONCE did he ever utter a word of disapproval of what was happening in the world of Indian economics during the UPA-II time or in his own RBI as the counterfeit notes were being sent to bank branches from the very vaults of RBI! Such a man suddenly found his voice when the government changed. Isn’t that rather interesting?
Rajan’s Duplicity and Demonetization
Matters of governance and of national security and commerce are not taken in a uni-dimensional context. There are multiple reasons and multiple contexts that need to be brought to bear. Demonetization was one such matter. It had many reasons behind it. The reason why it was not undertaken by many before was also because it needed someone to go beyond one’s own need for power and love for the integrity of the nation. It is, therefore, not just utterly foolish but also intellectual dishonesty for someone like Rajan, a banker and economist, to denounce Demonetization time and time again, only on the basis of how he looks at the economy. Which, by the way, has proven to be incorrect.
Earlier this year, not only did Rajan suggest that the short-term costs will outweigh long term benefits, but also went onto say that Demonetization had not been an economic success.
Rajan said though the intent behind the move was good, it had come at substantial costs. “Certainly at this point, one cannot in anyway say it has been an economic success,” he pointed out.
Cannot in ANYWAY say? Really?!
- Despite the mindless running down of almost all cash coming back in – is the cash in circulation that was hitherto in the mattresses not an economic jackpot? In fact, by independent sources, 3 lakh crore of unaccounted wealth had come back into the banking system!
- Is an increase of 24% in the tax returns something to be scoffed at by any economist?
- Deposits of over Rs 1.75 crores were made in banks post demonetization.
- 1.8 million people were under government scrutiny for tax evasion
Not an economic success in ANYWAY, Mr. Rajan?! And, what baffles one even more is the state of the economy that this government inherited and what Rajan was now alluding to be a failure. Little realizing that brave and long term actions need to be taken when things are good. From under 5%, the BJP government had brought the GDP growth to over 7%. That was the time for tough action! Remember when Rajan’s political masters left India’s rule, the GDP growth was at 4.7% despite two good harvests!
Smart farm sector growth spurred India’s economy to grow 4.7 per cent in 2013-14, according to the gross domestic product (GDP) provisional estimates released on Friday. The GDP growth rate in the previous year was a decade-low of 4.5 per cent. This is the second year in a row during which the economy’s growth remained below the 5 percent.
The last time the economic growth rate had pierced the 5-per cent mark was in 1984-85 to 1987-88.
Good harvests in both the seasons lifted farm sector growth to 4.7 per cent for the year. It had grown 1.4 per cent in the previous fiscal. In the three-month period January-March, the farm sector grew 6.3 per cent against 1.6 per cent growth in the same period of 2012-13.
His ideologically inspired criticism of demonetization notwithstanding, given the obvious and evident benefits to the economy in the long-run, unlike what Rajan’s predictions were, he has now turned to the time-tested friend of the rabble-rousers – FEAR! Now, he is eloquently discussing the need to temper law enforcement against the corrupt.
Today, his criticism – now that most authorities and institutions are applauding Demonetization and the economic statistics are proving Rajan’s “fears” of it incorrect – has shifted to another specter, that of authoritarian law enforcement! Nice tactic for a man who was once known to be one of most authoritarian governor of the RBI, where he had many critics in the way he ran the place! Of course, with no word or action against his political masters like Chidambaram!
While Rajan said one needs to wait for data to emerge to be able to assess the full impact of demonetization, the economist from Chicago Booth added that tax authorities could play a significant role in identifying evaders based on data at their disposal. At the same time, he cautioned against harassment. “We have to have a very people-friendly way of investigating based on all the tremendous amount of information that is now being collected. It’s important to emphasise the message that we need better tax compliance in this country. To the extent we can do it without unleashing inspector raj.”
A man who thundered in a message to the RBI employees about why the “Culture of Impunity” must be stopped by strong punitive measures, has suddenly started doubting the need for enforcing the law as it should be to bring the wrong-doers to book, given the information from Demonetization. Convenient U-turn?
In a stinging attack on the issue of culture of compliance, Rajan said, “it has often been said that India is a weak state. Not only are we accused of not having the administrative capacity of ferreting out wrong doing, we do not punish the wrong-doer — unless he is small and weak.” (source)
It is indeed a strange world.
Another Compromised Economist May be the next UPA PM candidate
Those who think that Rajan’s utterances have been just coincidence or voicing of his conscience miss the obvious. He is being readied to be the next Manmohan Singh. The utterly compromised technocrat who will do the bidding of the plundering hordes of Congress and other UPA forces. He is being prepared for being the Congress PM candidate in 2019.
Think honestly and with clarity about a man who is so brilliant that he can get the world’s greatest award for an economist. He had predicted economic crashes. He knows how corruption is orchestrated – in financial terms and details – and how numbers are fudged.
Yet, how in the world can I explain myself as to how such a man was not just a willing accomplice of a government that was plundering lakhs of crores but did absolutely nothing to stop that. Worse, this man of great intellect and knowledge who talked hoarse about strict action against the corrupt has been riling against decidedly the toughest and the largest action ever taken in any country against corruption! How come?!
Either he is an idiot, which he is not. Or he is compromised. There is NO third explanation.
His predecessor in many ways – Manmohan Singh (RBI Governor, Almost won the Economics Nobel, UPA puppet PM) was the same kind. No man of any conscience can stay untouched and sane by the level of plunder and treason that was going on in the UPA-II regime. To oversee all that required a level of degenerate conscience that very few can summon!
His own RBI was collaborating with the foreign institutions to defraud Indian exporters off of thousands of crores, and Raghuram Rajan did not do a thing when he took charge of that Central Bank? What was this champion of integrity upto? Forget the handling of the NPAs, the rate increases etc at the RBI. Every idiot who works at the RBI can make that happen as well if one works with any intelligence. It is the larger reforms. The path-breaking, the transformations that are expected from stars. Not sucking upto political masters as has been the wont of Rajan. By not bringing them out and almost facilitating them, I would suggest that both, he and Manmohan Singh connived with the plunderers of the UPA-II regime! Lets not kid ourselves anymore about the piety and demure ways of high-grade intellectuals. The smarter you are accompanied with a high intellect, the more ways you can devise to plunder! Which is precisely what Manmohan Singh, Chidambaram and Montek Singh Ahluwalia trio went on to do in the last 10 years!
So, friends, get ready for Raghuram Rajan as the “surprise” choice for the PM candidate which will be extolled by the faithful in a bid to again install the Plundering Combine Inc, that the UPA was!