The conversation around central banks, inflation and interest rates also needs to take into account currency exchange rates which is a significant factor in understanding and evaluating central bank decisions. In Rajan’s case and given the circumstances around his tenure, this is even more important and part of the reasons his attempts at a balancing act are considered more commendable.
Aside, there are important contextual factors as well as one slightly philosophical question worth debating within the framework that you describe of this debate, which is, is growth really the only worthy goal? Does growth for the sake of growth, above all else mean much? Is all growth equal? Isn’t short term pain in the form of slightly lower growth an acceptable outcome for the sake of medium term structural gains and systemic growth trajectories? Isn’t that why we need independent institutions free from electoral pressures and volatile popularity votes so decisions can be made on merit and with longer time horizons? Why is the ostensible “deliberate lower growth” allegation sticking like a crime? Just like food supply and infrastructural issues need systemic long-horizon intervention from the government, it is imperative for RBI to address systemic financial system issues around bad debt, inefficiency in payment systems etc.
Crony capitalism in India is real and influential. MSME growth has actually not stopped, large business has also gained from input price decrease that they didnt pass on to consumers (which would have reduced CPI slightly more in tandem with WPI). All that happened was increased pressure to repay debts owed – something that should have happened all along and has progressively damaged the PSU banking system to the point it almost broke. Everyone from Adani to Bajaj has benefited from the nexus between politicians and politician-appointed bank governors like the SBI chairman, cutting across party and state lines. PS banks have been asking for almost two decades to allow them to share details of debt, default and payment history for previous loans for big corporates amongst each other, but have been blocked in many ways while there has been pressure to lend. This trend has to stop though if the country has to survive, and the initial adjustment would make for some ugly numbers for a while. But so what? Surgeries are not pretty. They can often even inspire better preventive health in the future. But avoiding the surgery is only allowing the gangrene to spread. Firing the surgeon is a way to do that, but denial doesn’t fool death.