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.Dishonest and Compromised Raghuram Rajan may well be the UPA PM Candidate in 2019 Click To Tweet
“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,