Reserve Bank Governor Raghuram Rajan who was appointed by previous UPA government in 2013, but was retained by NDA after its election victory in 2014, today announced his decision to return to academics after completing his tenure in September this year.
Possibility of a second stint for Raghuram Rajan as RBI governor was much speculated upon among the policy makers, industry and banking circels in recent months after BJP leader Subramanian Swamy wrote to Prime Minister Modi seeking Rajan’s removal from the post.
Raghuram Rajan, former chief economist of International Monetary Fund, today ended all the speculations as he wrote to his colleagues in the RBI that he was an academic and he had always made it clear that ‘his ultimate home was in the realm of ideas’.
Addressing his RBI colleagues, Rajan said: “I want to share with you that I will be returning to academia when my term as Governor ends on September 4, 2016. I will, of course, always be available to serve my country when needed.”
Talking about the state of Indian economy when he took office three years ago, Rajan said at that time the currency was plunging daily, inflation was high, and growth was weak and India was then deemed one of the ‘Fragile Five’.
Rajan said he had laid out an agenda for action, including a new monetary framework that focused on bringing inflation down and raising of foreign exchange reserves, transparent licensing and creating new institutions such as the Bharat Bill Payment System.
Reflecting on his tenure, Rajan said: “Today, I feel proud that we at the Reserve Bank have delivered on all these proposals.”
Rajan was often criticised by the industry and in recent months by BJP leader Subramaian Swamy for not cutting the benchmark interest rates to boost growth.
Rajan in a way responded to these criticism in his message to his colleagues as he referred to the accommodative stance adopted by him. He said: “We have also been able to cut interest rates by 150 basis points after raising them initially.”
Talking about the effectiveness of the policies adopted by him, Rajan said finally the currency stabilized and foreign exchange reserves were at a record high and India became the fastest growing large economy in the world.
However, talking about his unfinished agenda, outgoing RBI governor Raghuram Rajan slipped out what was speculated by many – the government’s reluctance to renominate him as he publicly expressed views contrary to the government’s line of thinking, including raising doubts on new GDP numbers.
Talking about his unfinished agenda, Rajan said: “Inflation was in the target zone but the monetary policy committee that will set policy has yet to be formed. Moreover, the bank clean up initiated under the Asset Quality Review is still ongoing.”
In a clear indication of his desire to have a second term as RBI governor and the government’s reluctance to repeat him, Rajan wrote: “While I was open to seeing these developments through, on due reflection, and after consultation with the government, I want to share with you that I will be returning to academia when my term as Governor ends on September 4, 2016.”
In what appears to be a farewell message to his team at the central bank, Rajan said: I am confident my successor will take us to new heights with your help.”
A second stint to Raghuram Rajan was advocatged by many, including former finance minister P Chidambaram who had appointed Rajan in 2013. Infosys cofounder Narayana Murthy had also publicly advocated two more terms for Raghuram Rajan as RBI governor.
But it was vehemently opposed by BJP leader Subramanian Swamy who described him not ‘fully mentally Indian’ and wrote to PM Modi demanding Rajan’s removal from the post.
Though the top BJP leaders, including party president Amit Shah and finance minister Arun Jaitley always described Swamy’s view as his personal opinion but the Rajan’s letter to his colleagues eventually confirmed the government’s reluctance.
Reacting to Rajan’s decision, P Chidambaram said NDA government did not deserve Raghuram Rajan, whereas Subramanian Swamy, who had attacked Rajan’s policies, said RBI governor was not appointed on the basis of a popular vote.
As an outspoken governor, Raghuram Rajan, was known for his independent decision making as he tried to rein in runaway inflation on the basis of Urjit Patel committee report and cleaning up of bank balance sheets saddled with non performing assets or bad loans.
Urjit Patel committee had set a target of bringing down retail inflation measured as CPI to 6% by January 2016 and restrict it to 4% by 2018.
After the news of Raghuram Rajan’s letter became public, Finance Minister Arun Jaitley appreciated the work done by Raghuram Rajan as RBI governor and thanked him.
In a facebook post, Jaitley also said the government would soon announce Rajan’s successor.