Observing that democratic accountability is very strong in India, RBI Governor Raghuram Rajan says ‘we may have a long way to go’. (Reuters) Observing that democratic accountability is very strong in India, RBI Governor Raghuram Rajan says ‘we may have a long way to go’. (Reuters)

RBI Governor Raghuram Rajan on Friday said strong governments may not “move in the right direction”, and need rule of law and democratic accountability to keep them on the right path.

Addressing the DD Kosambi Ideas Festival in Goa on Friday, Rajan pointed out that Hitler too provided Germany with an extremely effective administration — the trains ran on time, as did the trains during Emergency in India in 1975-77. “His was a strong government, but Hitler took Germany efficiently and determinedly on a path to ruin, overriding the rule of law and dispensing with elections,” he said.

While rule of law prevents the tyranny of the majority that can arise in a democracy, democratic accountability ensures the government responds to the wishes of the mass of the citizenry, allowing emerging groups to gain influence through political negotiation and competition with others.

According to Rajan, ‘free markets’ can be considered as a fourth pillar in addition to those suggested by political scientist Francis Fukuyama — a strong government, rule of law and democratic accountability — for liberal market democracies. The bedrock on which all four pillars stand is a broadly equitable distribution of economic capabilities among the citizenry, he said.

While free markets and democracy create a level playing field, there is a key difference. “Democracy treats individuals equally, with every adult getting one vote. The free enterprise system, by contrast, empowers consumers based on how much income they get and property they own,” Rajan explained.

Rajan said the median voter rationally agrees to protect the property of the rich and to tax them moderately when they are seen as efficient managers, creators of jobs and prosperity that all benefit from. However, if the rich are seen as idle or crooked — as having simply inherited or, worse, gained their wealth nefariously — the voter should be willing to vote for tough regulations and punitive taxes on them.

Citing Fukuyama, Rajan said, India was strongest as far as democratic accountability was concerned. It also adhered broadly to the rule of law. “But where it arguably may have a long way to go, as Fukuyama emphasised, is in the capacity of the government (and by this I mean regulators like the RBI also) to deliver governance and public services,” Rajan said.

The RBI governor, however, added that areas of excellence were strewn throughout central and state governments such as building of the New Delhi Metro, the reach of the public distribution system in Tamil Nadu, or the speed of the rollout of the Pradhan Mantri Jan Dhan Yojana. “But such capabilities have to permeate every tehsil in every state,” he pointed out.

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