Exit of Raghuram Rajan as RBI Governor : Predictable Surprise  


The exit communication to staff by Mr. Raghuram Rajan, RBI Governor, comes as surprise, despite being so predictable. Tone reflects certain kind of arrogance (more on this later) which is unusual for stature of personality like him.

The timing of address seems suspect. It was just a week ago when press asked for his views on his possible second term or exit, the response was diplomatic and more nuanced.

" If you know such cases, the decision is reached after discussion with the government and the incumbent. I am sure you will know when there is news. I will direct you all to the statements of the prime minister and the finance minister. That is all I have to say,"

After a cursory look at language of communique, it seems that decision was reached after discussion and government was not willing to extent the term despite willingness of governor to continue at helm for more time.

" While I was open to seeing these developments through, on due reflection, and after consultation with the government...I will be returning to academia."

Added caveat in address further reflect his desire to work in Indian Policy circle.

“I will, of course, always be available to serve my country when needed.”

So he played proactively to his advantage (as one someone put it “Rajan exited in hour of his triumph”) or may be government asked him to break the ice so that they are free to choose his successor without taking any blame from defenders of Rajan.

The public reaction, especially of Press, political opposition and supporters and some enthusiastic supporters of Mr. Rajan (including young students, professionals) was predictable. This was best dissected and anticipated by Journalist R.Jaganathan in Swarajya Magazine article appropriately titled “Why Raghuram Rajan Could Do Without His Defenders”

“While it is fair to say Rajan has been an excellent governor, it is absolutely wrong to presume that or him we would be in deep trouble. If the future of Indian markets depends on whether one man stays and goes,  it is better that he goes."
"What we need is investor belief in what India can credibly offer, and not what one man can offer by way of assurance."

The one unusual thing was kind of arrogance reflected in his departure address.  No one dispute the fact that he was good governor, academician and statesman and above all a person who speaks his mind freely on every issues, be it social justice, intolerance or opportunities provided by education beside mundane economic topics. I regret to say that he has let down people by such tone in final communique.

The language like In my opening statement as Governor, I laid out an agenda for action” and presenting too gloomy picture at start and too bright a picture of present and taking credit for same seems a exaggeration and chest-thumping. It seemed to put him above institution and taking all credit for himself (albeit in language of “We” to represent RBI) shows the arrogance, for otherwise a ground to earth and simple person.

A more nuanced and calibrated performance appraisal is need of hour rather than toeing popular line that government has let down India by not extending term of RBI Governor.

Though a detailed performance appraisal may require a full post, I would take two-three points which Mr. Rajan has highlighted as his major accomplishments:

  1. New Inflation framework and Low Inflation: Efficacy of monetary policy in tackling food and fuel inflation is still debated. Whether it was tight monetary policy or global commodity slump along with efficient food management (lower MSP increase, release of buffer stock, price stabilization fund etc) needs to be deciphered. Also we need to analyze the opportunity cost of tight monetary policy in terms of higher cost to credit and its resultant impact on growth rate (reflected in lowest rate of bank credit expansion in a decade).
  2. Rupee stabilization and Forex Reserve: RBI played as per books and precedents (mobilizing NRI deposits with assurance of government guarantee). Also certain credit should also go to change of government at center with its promise of reform and growth.
  3. Positive Interest Rate on Deposits: It’s a laudable initiative and he should be congratulated for continuing his predecessor, D.Shubarav’s, initiative to provide a better deal to silent majority of savers. But why the saving and Credit growth hit the lowest ever in last few years? Why Indians are not taking advantage of positive real interest rate ?

These are issues which needs wider and dispassionate probing and sober analysis rather than jumping the gun on either side – in favour of Mr. Rajan or his critics. We need to make our considered opinion based on facts, substance and logic rather than on emotions.

Finally, Government has every freedom to choose the next governor and there are many capable people. The possible candidates include SBI Chairman Mrs. Arundhati Bhattacharya (who could possibly be first women governor) and Executive Director at IMF Mr. Subir Gokaran.

We hope that a prudent decision will be taken keeping Public and National interest in mind. Hopefully new RBI Governor would also be keeping in mind the ultimate objective of creating more jobs and prosperity in country rather than promoting crony capitalism. He would hopefully carry forward the good initiatives taken by Mr. Rajan while applying his mind along with taking help of institutional expertise of RBI to provide a helping hand to government in achieving macroeconomic stability and economic growth.

 

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