Ending speculation on his continuance at the Reserve Bank of India (RBI), Governor Raghuram Rajan, who has been under attack from members of the BJP, announced Saturday that he will not continue in office when his term ends on September 4. He said he will go back to academia in the United States.
In an email to RBI employees, Rajan hinted at the disconnect with the government, mentioning that he was “open” to complete the unfinished agenda.
“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 first remarks, Union Finance Minister Arun Jaitley said the government appreciates the “good work” done by Rajan and will soon take a decision on his successor.
“Dr Raghuram Rajan has announced his intention to go back to academics at the end of his current assignment. The government appreciates the good work done by him and respects his decision,” Jaitley said in a Facebook post. “A decision on his successor would be announced shortly.”
In the BJP and the establishment, there was no regret after Rajan’s announcement. A BJP leader, who did not wish to be named, countered criticism of the government for letting the Governor leave: “Do you know the name of the chief of Federal (Reserve) Bank of America? Do investors invest after seeing photos of the RBI Governor or the PM of India?”.
The BJP leader, who said it was wrong to criticise party Rajya Sabha member Subramanian Swamy who led a vitriolic campaign against Rajan and wrote letters to the Prime Minister, said: “On a serious issue like this, no government seeks the opinion of the party. However, we reiterate that the BJP believes the RBI Governor should not be foreign educated and an academic of a foreign university. We wish we get an accomplished economic policy maker and not merely a banker.”
Rajan’s exit comes at a time when the RBI is in the middle of multiple actions on two crucial fronts — inflation and bad loans.
“Two 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. The bank clean up initiated under the Asset Quality Review, having already brought more credibility to bank balance sheets, is still ongoing,” Rajan said. International developments, he said, also pose some risks in the short term.
“I am an academic and I have always made it clear that my ultimate home is in the realm of ideas,” he said in the email. “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,” he said.
Professor of finance at the University of Chicago Booth School of Business, he has been on leave from 2013.
A PTI report from Bhubaneswar quoted Subramanian Swamy as saying: “It (Rajan’s decision) is good. The reasons I had given (against Rajan’s continuance) were all valid. He has realised he would not get a second term. That’s why he has made a statement himself.”
Earlier in the day, Swamy said: “Raghuram Rajan is an employee of the Government of India. We don’t select employees on the basis of popular vote.”
Last month, Prime Minister Narendra Modi, asked in an interview with The Wall Street Journal whether he supported the reappointment of Rajan as Governor, said: “I don’t think this administrative subject can be an issue for the media. And that issue is only in September, not now.”
On the campaign against Rajan, Jaitley had said he does not approve of “personal comments” against anyone including the RBI Governor.
In his email to RBI employees, Rajan, who also worked as Chief Economic Advisor during the UPA rule before taking charge as the 23rd Governor of RBI on September 4, 2013, said, “I am confident my successor will take us to new heights with your help. I will still be working with you for the next couple of months, but let me thank all of you in the RBI family in advance for your dedicated work and unflinching support. It has been a fantastic journey together.”
When D Subbarao’s term as Governor ended, Rajan, who also worked as Chief Economist of the International Monetary Fund, came to the RBI when the country was facing challenges on the external finances front and the rupee was under severe pressure. He took a host of measures to stabilise the rupee and liquidity.
“I feel proud that we at the RBI have delivered on all these proposals. A new inflation-focused framework is in place that has helped halve inflation and allowed savers to earn positive real interest rates on deposits after a long time. We have also been able to cut interest rates by 150 basis points after raising them initially,” Rajan said. In fact, the major complaint of Subramanian Swamy was that the RBI under Rajan did not cut interest rates enough to support growth, leading to the collapse of small and medium units.
But in his email, Rajan said his measures “reduced the nominal interest rate the government has to pay even while lengthening maturities it can issue — the government has been able to issue a 40 year bond for the first time”.
“The currency stabilised after our actions, and our foreign exchange reserves are at a record high, even after we have fully provided for the outflow of foreign currency deposits we secured in 2013. Today, we are the fastest growing large economy in the world, having long exited the ranks of the Fragile Five,” he said.
On his association with the government, Rajan said, “We have worked with the government over the last three years to create a platform of macroeconomic and institutional stability. I am sure the work we have done will enable us to ride out imminent sources of market volatility like the threat of Brexit (exit of Britain from European Union).”
He said the RBI has made adequate preparations for the repayment of Foreign Currency Non-Resident (B) deposits and their outflow, managed properly, should largely be a non-event. “Morale at the bank is high because of your accomplishments. I will, of course, always be available to serve my country when needed,” he said.
On the RBI’s accomplishments, Rajan said, “We have done far more than was laid out in the initial statement, including helping the government reform the process of appointing public sector bank management through the creation of the Bank Board Bureau, creating a whole set of new structures to allow banks to recover payments from failing projects, and forcing timely bank recognition of their unacknowledged bad debts and provisioning under the Asset Quality Review (AQR).”
The RBI also worked on an enabling framework for National Payments Corporation of India to roll out the Universal Payment Interface which will revolutionize mobile-to-mobile payments in the country. “Internally, the RBI has gone through a restructuring and streamlining, designed and driven by our own senior staff,” he said.