The Professional Pessimists

DURING CHINA’S CURRENT Covid crisis, empathy has oozed from the pages of The New York Times and The Washington Post. At its peak in India, during the lethal second Covid wave in the summer of 2021, instead of empathy, vitriol poured out of foreign media and a hoary cabal of professional pessimists in India and abroad.

Global leaders have over the past few weeks been deeply sympathetic towards China despite Beijing lying about the number of its citizens who have died of Covid after the country opened up from self-imposed isolation.

The European Union’s (EU) Health Commissioner Stella Kyriakides was quoted by EU officials as saying solicitously: “Commissioner Kyriakides has reached out to her Chinese counterparts to offer solidarity and support, including public health expertise as well as through variant-adapted EU vaccine donations.”

The tools professional pessimists deploy across domains are subtle. Consider Raghuram Rajan, former governor of the Reserve Bank of India (RBI). In a recent op-ed for a leading daily, Rajan wrote: “To be sure, there have been areas of substantial progress over the last few years. Yet, to really make this India’s moment we cannot delude ourselves. In reality, last quarter’s GDP numbers suggest we have grown about 2.5 per cent per year since 2019, way below our pre-pandemic rate of about 5 per cent. Among large economies, we are among the furthest below the level to which we should have grown in the absence of the pandemic.”

According to Rajan, India’s economy is floundering. Never mind that it is the world’s fastest growing large economy and the fifth largest. Not a word about that. The problem though is that professional pessimism leads to Rajan getting his facts wrong. Note his clever phrasing: “In reality, last quarter’s GDP numbers suggest we have grown about 2.5 per cent per year since 2019.”

Rajan deliberately chooses the period between 2019 and 2022, which contained two years of virtually flat GDP growth, like most of the rest of the world, due to the Covid pandemic. A less disingenuous way would be to examine GDP growth between 2014-15 and 2018-19, before the Covid pandemic struck.

What do those figures reveal? Indian GDP grew at 7.2 per cent in 2014-15, 8.2 per cent in 2015-16, 7.1 per cent in 2016- 17, 7.2 per cent in 2017-18 and 6.1 per cent in 2018-19. The average growth rate in the five pre-Covid years between 2014-15 and 2018-19 was therefore 7.17 per cent.

That’s not what Rajan told Congress leader Rahul Gandhi, with a mournful shake of the head, during their Bharat Jodo Yatra conversation. India, he said, would be lucky to end 2023-24 with 5 per cent GDP growth.

That contradicts the assertion of every global financial institution. The World Bank projects India’s GDP growth in 2023-24 at 6.6 per cent. The International Monetary Fund (IMF) estimates India’s growth at 6.1 per cent. Morgan Stanley forecasts India’s growth at 6.4 per cent.

But facts have never stood in the way of professional pessimists. Uncomfortable ones are silently buried. Rajan would be mortified if the vast Indian hoi polloi discovered that, as chief economic adviser to the Ministry of Finance in 2012-13, he presided over an inflation rate of 10.2 per cent.

P Chidambaram had returned as finance minister in July 2012. Rajan was appointed governor of RBI in September 2013. Non-Performing Assets (NPAs) rose steeply during 2007-13. The freewheeling “phone banking” era allowed crooked businessmen (many currently in jail) to borrow large sums from banks. They had no intention of paying back these loans. The government ensured that banks “evergreened” the loans by rolling them over. NPAs rose but were carefully hidden in bank balance sheets. RBI under Rajan maintained a respectful silence.

In May 2014, the new government inherited an economy with high inflation and low GDP growth, saddled with large unrecognised bank NPAs. Within a year, RBI was told by the government to direct banks to reclassify debt on their books. The review process started in 2015. NPAs were recognised. Evergreening was stopped. It has taken over seven years to clean up bank balance sheets. Rajan’s three-year term as RBI governor ended in 2016. It wasn’t renewed.

With the phone-banking era over and NPAs under control, bank stocks, not surprisingly, have outperformed the Sensex. There’s a lesson in that for those seeking a career in professional pessimism.

Covid-19GDP growthIndian economyP ChidambaramRaghuram Rajan