Indian Express

Post-election showdown looms for RBI chief Raghuram Rajan

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Rajan has raised the repo policy rate three times by a total of 75 basis points to 8 percent. Express Rajan has raised the repo policy rate three times by a total of 75 basis points to 8 percent. Express

India’s high-profile central bank governor is likely to come under political pressure to retreat from his hawkish stance on inflation if opposition leader Narendra Modi wins power in the country’s general election.

Strategists in Modi’s Bharatiya Janata Party (BJP), confident that his jobs-first policy pitch will secure a strong voter mandate, suggest that they would prefer to have one of their own at the helm of the Reserve Bank of India (RBI).

That sets the stage for a confrontation with RBI Governor Raghuram Rajan, who since being appointed last September has enjoyed an unusually smooth ride in a country where governments often treat the RBI as a punchbag for their own policy failings.

The former International Monetary Fund chief economist is widely viewed as India’s most capable technocrat, winning the respect of investors for his handling of a currency crisis that hit Asia’s third-largest economy last year.

“It will be a big loss of face for the country and would create a negative perception among foreign investors if the BJP removes the governor immediately after forming the government,” said A. Prasanna, an economist at ICICI Securities Primary Dealership Ltd in Mumbai.

Before moving to the RBI, Rajan, 51, served as chief economic adviser to the finance ministry under the Congress party-led government, which opinion polls say faces defeat in the five-week national election starting on Monday.

BJP treasurer Piyush Goyal has attacked Rajan over a series of interest rate hikes intended to curb inflation, now running at double the RBI’s longer-term 4 percent target, at a time when economic growth has fallen to its slowest in a decade.

Rajan has raised the repo policy rate three times by a total of 75 basis points to 8 percent.

“Governor Rajan is only aggravating the problems and making them worse by increasing interest rates,” Goyal, a leading strategist and fundraiser for the nationalist opposition party, told the Economic Times.

Subramanian Swami, a BJP ideologue and former cabinet minister with close ties to a Hindu grassroots movement that has shaped Modi’s thinking, puts it more bluntly: “We can make it worthwhile for him to leave,” Swami told Reuters.

“I would not be surprised if a government led by Narendra Modi removes the governor,” said Satish Misra, an analyst at the Observer Research Foundation, a Delhi-based think-tank. “Modi does not brook any opposition.”

GOOD COP, BAD COP
Rajan’s policy and academic credentials – he was a professor at Chicago’s Booth School of Business – qualify him as a card-carrying member of the policy jetset that gathers twice a year at the IMF’s Washington headquarters or at Group of 20 meetings.

Yet his autonomy as central bank governor is more circumscribed than that of his counterparts in the West, who are typically nominated by the government but also continued…

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