Rajan wins over Modi despite broad mistrust

June 1, 2016

New Delhi, June 1: In late 2014, the knives were out for RBI governor Raghuram Rajan. Finance ministry officials were frustrated by his reluctance to cut interest rates to stimulate growth, and moves were afoot to ease him out of the job. Some were airing their reservations about Rajan's hawkish stance in the media.

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Prime Minister Narendra Modi convened a meeting of senior finance ministry staff that December to hear their complaints, said a person who was present.

At the end, the leader delivered a stern message: do not indulge in a public spat with the central bank.

The moment marked a turning point in ties between the heads of the newly installed government and the Reserve Bank of India (RBI). Since then, Modi and Rajan have developed a close working rapport, government officials and people close to the governor say, and that could be crucial to the $2 trillion economy.

With Modi's patronage, it is more likely the government will reappoint Rajan, whose three-year term expires in September, should he wish to stay on, the sources said.

That would allow him to try to revive India's banking sector that has been smothered by distressed debt, which, in turn, is choking off economic recovery.

"Rajan will get another term and he will accept it," said Arvind Mayaram, India's former finance secretary who Rajan worked with closely first as the government's chief economic adviser and then as RBI governor. "He is well entrenched in India's political economy."

A top government official said the decision rests with Modi and the leader has not yet said what he wants to do. Modi recently told The Wall Street Journal that Rajan's reappointment would come up only in September.

The official, speaking anonymously because he was not authorised to discuss the matter with the press, added that the prime minister was "proud" of the RBI governor and that a campaign against Rajan would not affect Modi's decision.

The prime minister's office and finance ministry did not respond to requests for comment. Rajan, former chief economist at the International Monetary Fund, has not disclosed his plans, and did not respond to requests for comment for this article.

Modi's Support Is Key

Modi's support would be important if the 53-year-old RBI chief is to get the big state banking sector to complete a cleanup of massive debts and force defaulters to pay up.

Banks making provisions for bad debt are reluctant to issue new loans, leading to criticism within the sector and complaints from smaller businesses and politicians.

Patronage from above will also help shield Rajan from lingering opposition within the ruling nationalist Bharatiya Janata Party (BJP) to a man known for his straight talking and willingness to question government policy and achievements.

As the personal understanding between Rajan and Modi appears to grow, some officials still resent him.

The fact that Rajan was appointed by the previous Congress government did not help him win friends in Modi's BJP, and the former University of Chicago professor has been viewed by some with suspicion as a product of the West, not India.

BJP parliamentarian and economist Subramanian Swamy, one of those leading a campaign to remove Rajan, recently accused him of "wilfully and deliberately wrecking the Indian economy."

The governor's penchant for blunt commentary raises hackles. Rajan's appeal for tolerance late last year was perceived to be a veiled criticism of the government for appealing to the Hindu majority at the expense of minority communities, prompting Swamy to rebuke him for speaking like a "grandfather".

Rajan recently compared India's fast-growing economy to a "one-eyed king in the land of the blind". Trade Minister Nirmala Sitharaman publicly censured his comments.

Bonhomie

The first signs of growing bonhomie between Modi and Rajan came early last year, when Modi called Rajan the "best teacher" for explaining complex economic issues to him.

Days later, the governor returned the compliment, saying the teaching went both ways.

The prime minister backed Rajan in the monetary policy panel's composition and blocking moves to strip the RBI's authority to regulate government bonds and manage public debt.

Modi's office also directed the finance ministry to pursue only those policies where there was agreement with the central bank, a former finance ministry official said.

The governor frequently visits New Delhi to meet Modi, a government official with direct knowledge said. But their meetings are mostly kept away from the public gaze.

Modi's office declined a request to disclose the number and details of the meetings, saying the information relates to "economic interest of the state".

Rajan had help from junior finance minister Jayant Sinha, a college friend and one of the more influential economic voices in the Modi government.

At the December meeting, Sinha told the attendees that the clashes were undermining the government's credibility, the person present said.

A government source said that Sinha also facilitated meetings between Rajan and Modi to broker a compromise on thorny issues such as the composition of the new monetary panel. Sinha did not respond to a request for comment.

Learning On The Job

Rajan may prove a more effective governor second time around if he gets the chance, say some RBI insiders and economists.

Although he fended off a market attack on the rupee early in his tenure, bankers, economists and his former colleagues said he was relatively slow to grasp how liquidity flows through the economy and how to fine tune it to meet his primary policy goal of taming inflation.

Under Rajan, the RBI forced banks to source limited short-term funds from cash-for-bond auctions rather than getting unlimited funds from the central bank at a fixed rate.

Banks complained the new system was forcing up costs and hampering the transmission of rate cuts to the real economy, said several bankers privy to the discussions with the RBI.

At first, Rajan publicly dismissed their concerns as "nonsense". It was only after 16 months of pleading by banks that he finally revamped the RBI's liquidity management in April, the bankers said.

A second stint is likely to see a more accomplished operator as the RBI tackles bank debt, tries to develop the bond market as a viable source of funding for companies and switches to a Western-style approach to decision making.

A new monetary policy panel will be formed later this year to set interest rates, something Rajan favoured to make the RBI more independent and introduce transparency to the process.

In a key victory for Rajan, draft legislation from the finance ministry that would have allowed the government to appoint more than half of the panel's members was amended to split it evenly between government and RBI nominees.

Rajan will get the casting vote in the case of a 3-3 split. Those who have worked with Rajan said his people skills and powers of persuasion will give him a big say on setting rates.

"Why Rock The Boat?"

Rajan continues to be lionised by foreign investors whose funds are needed to keep the Indian economy motoring ahead.

That was key in convincing Modi to defend him, while two off-cycle interest rate cuts in January and March last year also acted as a balm, a senior minister in the federal cabinet said.

The country has been ravaged by drought in the last two years and not enough jobs are being created to accommodate its rapidly expanding workforce, but India is the world's fastest growing major economy and inflation is half what it was in 2013.

"The combination of Modi, (Finance Minister Arun) Jaitley and Rajan are delivering on the macro front," said Gita Gopinath, an economics professor at Harvard University who knows Rajan well. "I really don't see any reason to rock the boat."

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March 22,2024

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New Delhi, Mar 22: The Aam Aadmi Party has made it clear that Arvind Kejriwal will remain the Delhi Chief Minister despite his arrest in the liquor policy case. While no law would stop the AAP leader from running the state from prison, the jail guidelines would make it extremely difficult.

Kejriwal was arrested yesterday by the Directorate of Enforcement (ED), following his avoidance of nine summons issued by the investigative agency in relation to the Delhi liquor policy case. 

The decision to apprehend Kejriwal transpired shortly after the High Court's denial of protection from arrest. With this development, Kejriwal becomes the second opposition Chief Minister to face arrest by the ED within a span of fewer than two months, following Jharkhand Chief Minister Hemant Soren's similar fate in January 2024 due to allegations in a graft case. Subsequently, Hemant Soren was replaced by his party colleague, Champai Soren.

Delhi government minister Atishi declared shortly after Kejriwal's arrest that he would not step down from his position. However, the legality and feasibility of a detained Chief Minister continuing to fulfill official duties warrant examination.

A former law officer of Delhi's Tihar Jail says that an inmate can only hold two meetings in a week, which would make it difficult for Mr Kejriwal to carry out his responsibilities as Chief Minister.

Can he run government from prison?

While theoretically plausible, governing from detention presents logistical challenges. However, there exists no explicit prohibition against a Chief Minister conducting official responsibilities while under arrest. Disqualification only occurs upon conviction.

The Representation of the People Act, 1951 outlines disqualification provisions for specific offenses, necessitating a conviction for those holding office.

Will centre impose president’s rule?

Constitution expert SK Sharma told TOI that there exists no specific legal provision mandating the automatic resignation of a state's Chief Minister upon arrest. He cited the example of former Bihar CM Lalu Prasad Yadav, who appointed his wife Rabri Devi as CM during his arrest. "Former Bihar CM Lalu Prasad Yadav made his wife Rabri Devi the CM of the state when he was arrested. More recently, Hemant Soren in Jharkhand also resigned. Calling cabinet meetings in the jail or review meetings with officials in his cell does not seem practical," said Sharma.

Sharma further indicated that if AAP persisted in retaining Kejriwal as CM, it could lead to a deadlock, potentially prompting the Centre to impose President's rule in Delhi.

What may happen next?

Despite AAP's unwavering stance on Kejriwal's continuation in office, internal sources say that potential successors, including Atishi and health minister Saurabh Bharadwaj. Atishi, known for her extensive portfolio and close ties to Kejriwal, alongside Bharadwaj, a prominent minister with significant responsibilities, emerged as likely contenders. Additionally, sources speculated about the surprise candidacy of Kejriwal's wife, Sunita, given her background as a revenue services officer and active involvement in party affairs.

However, finding a successor of comparable stature to Kejriwal, a national convener of the party and three-time Delhi CM, presents a formidable challenge for AAP.

Role of Delhi's Lieutenant Governor

Delhi's unique power structure, featuring an elected Chief Minister and a Lieutenant Governor appointed by the Centre, presents a complex scenario. Kejriwal's ability to continue as CM hinges on legal relief, failing which the Lieutenant Governor can seek Presidential intervention, potentially leading to the imposition of President's rule.

Recent cases demonstrate how denial of bail can compel resignation, highlighting the precarious position of arrested officials.

In light of these developments, the Lieutenant Governor could invoke 'failure of constitutional machinery' to justify President's rule, thereby bringing the national capital under direct Union government control until the end of the current Assembly's tenure in February 2025.

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March 29,2024

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The Income Tax department has issued a notice of approximately Rs 1,700 crore to the Congress party, exacerbating its financial concerns ahead of the crucial 2024 Lok Sabha elections, multiple reports revealed on Friday.

The development comes after the Delhi High Court rejected the party's plea challenging reassessment proceedings for four assessment years.

The new demand pertains to assessment years 2017-18 to 2020-21 and includes penalties and interest. The Congress party now awaits reassessment for three other assessment years, expected to conclude by Sunday, the stipulated deadline, said a report.

Congress lawyer and RS MP Vivek Tankha alleged that the fresh notice of nearly Rs 1,700 crore was served on the party on Thursday without key accompanying documents.

"We received the demand notice without assessment orders. The govt appeared keener to serve us with demand rather than issue us reasons for reassessment," a news paper quoted Tankha as saying. He further added, "this is how the main opposition party is being strangled financially, and that too during the Lok Sabha elections".

Delhi HC rejects plea

The Delhi High Court, on Thursday, dismissed petitions filed by the Congress challenging the initiation of tax reassessment proceedings spanning four years by tax authorities. Justices Yashwant Varma and Purushaindra Kumar Kaurav, comprising the bench, stated that the pleas were rejected in line with their earlier decision to abstain from intervening in the reopening of reassessment for an additional year.

The subject matter of the case pertained to assessment years from 2017 to 2021.

In a previous petition dismissed the week before, the Congress party had contested the initiation of reassessment proceedings concerning assessment years 2014-15 to 2016-17.

The High Court dismissed the plea, citing that the tax authority had prima facie gathered "substantial and concrete" evidence warranting further scrutiny. The tax department alleged that approximately Rs 520 crore had evaded assessment during these three years.

Additionally, the department revealed that searches conducted on entities, including some purportedly linked to Karnataka deputy chief minister D K Shivakumar and a company in Surat, had uncovered cash transactions involving Congress. These transactions were cited as violations, disqualifying the party from tax exemption available to political parties.

In the absence of exemption, parties are treated as "association of persons" and are obligated to pay taxes on their reported income. Moreover, the cash transactions are included in their total income.

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March 25,2024

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Congress leader Rahul Gandhi will face Kerala BJP chief K Surendran in the high-profile Wayanand constituency this Lok Sabha election.

Wayanad, a Congress stronghold, has been with the party since 2009. Mr Gandhi won it in 2019 and retained his Lok Sabha membership, having lost his Amethi seat to Union Minister Smriti Irani.

His rival this time, Mr Surendran, has the significant task of challenging the Congress-Left binary in Kerala's political landscape. Both the Congress and the Left are in a national alliance though they remain rivals in this southern state.

Surendran has contested all three Lok Sabha elections since 2009 and also four Assembly elections. In 2021, he contested from Konni and Manjeshwar seats simultaneously. 

In 2019 general elections, Mr Surendran finished third in Pathanamthitta constituency behind the Congress and the Left. He had lost the 2016 assembly polls from Manjeswaram by merely 89 votes. He also contested a bypoll in 2019, but lost it as well.

He was appointed to head the BJP Kerala unit in 2020 and became the face of the protests against the entry of young women into Sabarimala years ago.

Mr Surendran, who is from Kozhikode, figured in the BJP's fifth candidates' list, which also named actor Kangana Ranaut and former Calcutta High Court judge Abhijit Gangopadhyay.

Wayanad is the second Kerala seat to see a battle of titans after Thiruvananthapuram, where Union Minister Rajeev Chandrasekhar will face the three-time Congress MP Shashi Tharoor.

The BJP has also fielded former vice-chancellor of Sree Sankara Sanskrit University K S Radhakrishnan from Ernakulam and actor-turned-politician G Krishnakumar from Kollam. T N Sarasu, a former educator, will contest from Alathur in Palakkad.

The highlight of the BJP's fifth list was the electoral debut of actor Kangana Ranaut from Mandi in her homestate Himachal Pradesh. The list, which named 111 candidates in 17 states, also featured new joinees like industrialist Naveen Jindal and Mr Gangopadhyay.

Mr Gangopadhyay, who joined the BJP recently after taking voluntary retirement, is the first former judge to join electoral politics. He has been fielded from Tamluk in Bengal and will face Trinamool's Debangshu Bhattacharya, a youth leader who had penned the party's "Khela Hobe" song.

Varun Gandhi, a sitting MP from Pilibhit, has been dropped and his seat has gone to Jitin Prasada, who switched to the BJP from the Congress in run-up to the election. His mother Maneka Gandhi has been fielded from her current seat, Sultanpur.

Actor Arun Govil, who played Ram in popular TV series Ramayan, will contest from Meerut. Union ministers Ashwini Kumar Choubey and General VK Singh too were part of the list.

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