Should Modi Govt Be Blamed for RBI Governor Rajan's Exit Decision?

By Pankaj Maru.

On a sleepy late Saturday afternoon, all of a sudden India's business and news channels are on a over drive decoding the news of Reserve Bank of India (RBI) Governor Dr.Raghuraman Rajan's decision to step down from his post, after his term ends in September 2016.

Rexit Before Brexit

Putting an end to the on-going media, market and political speculations on the second term as RBI Governor, Dr.Rajan himself revealed his decision with RBI staff even before the media or anybody could sniff what's he was planning to do.

In the message sent first to the central bank's staff on Saturday,  Dr.Rajan wrote about his decision to move back to academia post his tenure ends after three months.

Excerpts from Dr. Rajan's letter to RBI staff

"l am an academic and I have always made it clear that my ultimate home is in the realm of ideas. The approaching end of my three year term, and of my leave at the University of Chicago, was therefore a good time to reflect on how much we had accomplished."

"While all of what we laid out on that first day is done, two subsequent developments are yet to be completed. Inflation is 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, having already brought more credibility to bank balance sheets, is still ongoing. International developments also pose some risks in the short term."

Although, Dr. Rajan has clearly stated in his letter that his decision was well in consultation with the Central Government and Finance Ministry, the Indian media and some of the top political and economics commentators including Meghnad Desai have attributed Dr.Rajan's exit with Modi Government's unwillingness to extend his tenure. In addition, BJP's MP and senior leader Subramanian Swamy's has a strong dislike and disapproved of Dr.Rajan's policies and independent functioning style, which is a known open fact.

With that, Dr. Rajan becomes the first RBI Governor since 1992 to not get a second term as RBI Governor.

To an extent, the Indian media is right in linking Dr. Rajan's exit decision with the Swamy's relentless tirade and charges against the governor but it does forget to take into account that although Dr. Rajan was appointed by the Congress led UPA-II in 2013, but the BJP led Modi Government continued with him even after it came to the power in the centre.   

Besides, there's wasn't a single incident or statement from the central leadership that could reflect the so-called media projected hostile equation between Dr.Rajan and the PMO and Finance Ministry.

In fact, both PM Modi and Finance Minister Arun Jaitely have publicly and openly appreciated Dr.Rajan's work and his functioning.In addition, probably, Dr.Rajan is among the very few RBI Governors till date, who has been meeting the Finance Minister on regular basis to voice his concerns and discuss critical issues including the rising high-inflation numbers, huge surmounting unpaid loans by corporates and pressure of Non-Performing Assets (NPAs) on banking sectors and more. 

So there are no clues that could back the alleged unfriendly rapport between the three top key personalities of India.

In fact, FM Arun Jaitely  tweeted, "Dr. Raghuram Rajan has announced his intention to go back to academics at the end of his current assignment."

Given such strong support from the top central leadership plus when the media, markets and investors are all rallying around him, how could Dr.Rajan lose his integrity, confidence and ruffle by Swamy's allegations and unacceptable charges against him leading to his exit decision? That remains a question.  

While, there's absolutely no doubt on Dr.Rajan's intelligence as economist, vision and his efforts in resurrecting Indian economy and making banks more accountable, probably that's where he could have made some enemies from within the banking fraternity rather than central government's narrow stance on him.

Also, he is among the very few RBI chiefs, that have been very candid, open and in putting his voices in media and public. 

Going back to the core subject of Dr.Rajan's decision, unfortunately the Indian media once again is being found playing into the hands of stock investors and brokerage firms by playing and speculating the negative impact of governor's exit.

Rather than seeing it as a normal transition or change of guards, the media is guilty of speaking more like Foreign Institutional Investors (FIIs) or investment banking firms that largely investment funds and make profits on very short-term basis.

Swaminathan S. Anklesaria Aiyar, the famous columnist and economist consultant with World Bank, in one of his recent blog posts had speculated that, "If Rajan exits, so will billions in investment."  

In another post, Swaminathan writes, "The markets are not irrationally in love with RBI chief Raghuraman Rajan."

However, with all due respect to Swaminathan's economics insight, what he wrote in his online post is too much exaggeration in terms of value of investment that is likely to exit in case Rajan doesn't gets a second term. Unfortunately, such opinions and views are like adding fuel to the fire.

Time and Global Factors

The announcement by Dr.Rajan probably is seen quiet untimely and unexpected mainly due to a series on global factors and events that are likely to shape up the world in different economic direction and political ideology in near future. 

Britain is undergoing a political referendum on whether to stay as a part of European Union (EU) or exit it. Global economies are struggle to pace their growth. China's growth has fallen in more than two decades causing major impact on other economies.

The middle east region which dominates oil production has seen a slump in demands like never before as well as the price of crude has fallen drastically shattering those nations and overall business scenes.

Amidst this scenario global financial institutions like World Economic Forum and the World Bank have called India as a bright spot in terms of growth while global markets are struggling to achieve positive growth. This puts a huge pressure as well as responsibility on India to stand up with the time and make maximum of the economic sluggishness to its advantage.

And for that, country needs intelligent, smart and powerful leaders to formulate policy-reforms to enable India to achieve growth over 7-8 percent. That's where individuals like Dr.Rajan and his caliber and experience are very effective and essential.

Individuals and Institutions

Certainly, intelligent individuals makes institutions more powerful and adds value to it but they cannot be termed bigger than those institutions. As far as RBI is concerned, it is one of the top banking institution in India and has a strong legacy of governance headed by a central government appointed Governor for a three years tenure, which can be extended based on the cabinet's decision. 

Henceforth, Dr.Rajan's decision shouldn't be projected as a negative sentiments like a major setback to Indian economy, únfavourable to foreign investments and so forth. Because, across the global, investments are made on various factors that includes political leadership, social-political and economic stability, growth or market drivers and much more. And not just who is chief of central bank in that country or region.

Individual Decisions & Controversies

Probably, one situation that substantiate my point on individuals and large institutions is that of Hillary Clinton, who had replaced Condoleezza Rice to become 67th United States Secretary of State between January 21, 2009 till February 1, 2013  during the first term of President Barrack Obama. 

Like the RBI Governor position in India, the Secretary of State is a very key position and ministry in the US administration. So despite of the fact that Hillary Clinton was leading the post of Secretary of State, she herself opted out when Obama was serving his second term as US President.

Does this means that US President Obama had some political differences with Hillary Clinton and she didn't got second term to serve the post of Secretary of State?

Basically, Clinton decision to opt out of the Secretary of State post was her personal with some political situations she had to tackle during her term.

In Indian context, even late President APJ Abdul Kamal was not offered second term to lead the country as President. The wasn't any controversy that was stopping him to serve the second term as President but the main reason was lack of a political consensus and will among political parties.

So there are and always be many such examples of individuals who despite of all the top notch education, experience and knowledge would unable to lead top positions - that's the irony.

Whatever be the basis of individual's decision, it needs to be honoured and accepted with lot of respect and regards rather than trying to find some political agendas or motives.    

Most important aspect of Dr. Rajan as RBI Governor was that there's wasn't any control from the central government on his policies and way of functioning. He worked and will continue to work in remaining course of his tenure as independent central bank chief and economic policy maker responsible for creating a growth driven sustainable and stable economic environment in India.

Assuming there was no political controversy that dragged had Dr.Rajan and yet if he decided not to accept second term, will the media, some political and economics experts still look for political reasons or honour his personal decision? Probably the answer is no.

Dr.Rajan has categorically pointed in his message that he will be always to serve India, whenever he's needed to do so. Perhaps, that a positive gesture, suggesting a window to reach him in future and Indian government should take it as an future opportunity to avail his services to strengthen country's banking and economic framework. 

So nothing is permanent and lasting ever but only thing remain is constant change. There's certainly no dearth of talent in India and there are ample talented India abroad, which India needs to find out that can match the caliber and intelligence of Dr.Rajan and continue his legacy ahead into the future.

 (Image credits - DeccanChronicle.com)