Raghuram Rajan will exit India’s central bank after unnerving political leaders with calls for free speech and religious expression.
The focus now shifts to whether Prime Minister Narendra Modi can find a successor able to command credibility both with investors and his Hindu-based party.
The man who captured international attention with a prescient 2005 speech warning about a buildup of global financial risks on Saturday declared he'll leave the Reserve Bank of India at the end of his term in September.
The outgoing governor made clear that he was ready to continue: “I was open to seeing these developments through,” he said of his work on reining in inflation and addressing bad loans in the banking system.
As someone who spent several decades overseas, Rajan became a key target of Hindu hardliners in Modi’s party who don’t always cheer educated Indians who build their careers abroad.
The former International Monetary Fund chief economist wasn't shy in speaking out on topics outside monetary policy.
He used his post as a bully pulpit to advocate for going after tycoons he described as crooked, liberating the poor from “venal” politicians and calling for tolerance in a nation vulnerable to religious violence.
Dealing with Rajan presented a challenge for Modi, who built a pro-business, pro-deregulation record as chief minister of Gujarat state yet also relied on Hindu nationalists to secure the historic win that swept him to office in the 2014 national election. In recent weeks, the prime minister and his finance chief, Arun Jaitley, did little to rein in pointed attacks by Subramanian Swamy, an outspoken lawmaker with a large Twitter following who said Rajan was “mentally not fully Indian” and kept interest rates unnecessarily high.
As recently as June 7th Rajan told reporters to watch for statements from Modi and Jaitley regarding his future, joking that it would “be cruel for me to spoil the fun the press is having with all this speculation.”
Modi’s administration repeatedly said a decision on the RBI governor would be made in August, weeks before the end of Rajan’s term.
Yet in the past few weeks, Rajan was disappointed that Modi’s government was dragging its feet on giving him a second term and failing to back him publicly against attacks, according to a former top official familiar with the deliberations over
Rajan’s extension. In discussions with the government, Rajan wasn’t given assurances over a second term, the former official said.
Rajan SurpriseRajan’s letter on Saturday caught Modi’s government by surprise, according to another person familiar with the situation.
The administration saw the consultations between Rajan and Jaitley over his second term as still ongoing, and it has no obvious successor lined up, the person said.
Rajan’s announcement left economists and private-sector players scratching their heads.
The broad consensus had been that the government would eventually give
Rajan a second term despite the political noise, due largely to the wide respect that Rajan commands among industrialists, investors and economic leaders around the globe.Lawrence Summers, a former U.S. Treasury secretary who criticized
Now the search for his successor is on, and credibility is a key concern among investors. Among the names that have been speculated are two Finance Ministry officials -- Arvind Subramanian and Shaktikanta Das -- central bank Deputy Governor Urjit Patel and the head of India’s biggest state-run bank, Arundhati Bhattacharya, who would be the first woman to head the RBI.
One view in government is that India doesn’t need a high-profile central bank governor, the Times of India reported on Sunday, citing an unidentified source.”Sadly India is unlikely to see another academician as an RBI governor,” said Kunal Kundu, a Bengaluru-based economist at Societe Generale SA. “It would most likely be a bureaucrat.”
Bloomberg
