Over two years after exiting the Reserve Bank of India, Raghuram Rajan has spoken at length about the country, addressing matters that are currently under the political and economic spotlight. While Rajan's lecture at the University of California Berkeley broached numerous India-specific topics, including his first public remarks on GST and Demonetisation, an aspect of what he said also pertained to alleged excessive centralisation of decisionmaking hampering India's ability to fix three key issues.
Rajan first listed the bottlenecks to India's growth, citing three: torn infrastructure which he opined is holding back manufacturing, the need to clean up the power sector, and the need to clean up the banking sector. He then asked why this hasn't been done yet, and provided an answer himself, first setting the context:
"Question is why haven't we fixed these? Why are some problems festering? Especially because since 2014 we have a government which has majority in the Lok Sabha on its own and has been getting more power in the Rajya Sabha", Rajan observed.
He continued: "I would argue that part of the problem in India today is there's excessive centralisation of political decisionmaking. India can't work at the Centre. India works when you have many people taking up the burden, and today the central government is excessively centralised. An example of this is the quantum of decisions that requires the assent of the Prime Minister's Office."
He elaborated: "The fact that almost every decision goes up to the PM's office, every moderate decision, suggests that everything has to wait for the PM's office. An example is the amount of time it takes to appoint the CEOs of banks. It takes an inordinately long time. So banks are left headless. So if you have a bank with big problems, and it's left headless for a long time the problems get worse. "
Explaining further, he said, "Everything moves up through the... which means nobody wants to take a decision unless it has the approval up there. Which means even if the PM works 18 hours a day, he's a very hard working PM, there's only so much time he has. So the centralisation is an example."
Remarking on one of the consequences of this centralisation, he invoked the Statue of Unity, stating: "And it also suggests the kind of projects that get done are those that catch the eye of the PMO and it stays on them. For example, we built this massive statue, the Sardar Patel statue, on time. That suggests that when there's a will there's a way."
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