New RBI governor: How Modi govt made Raghuram Rajan's succession a routine one - Firstpost
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New RBI governor: How Modi govt made Raghuram Rajan's succession a routine one


As the exit date of Reserve Bank of India (RBI) governor, Rahuram Rajan, nears (4 September), everyone has their fingers crossed and toes twisted.  But the large fan following Rajan has (for all right reasons) or the doomsday predictions that followed governor’s announcement in June not to take up a second term at RBI, never seems to influence the top brass of Narendra Modi government, or a deliberate caution is being exercised by both the Prime Minister and Finance Minister, to show the world that is the case indeed.

True, the Modi government let Rajan complete his term, but he simply wasn’t the right man for this government. It isn’t hard to predict that the next RBI governor, who will succeed the ‘rock star’ Raghuram Rajan will be a mortal, not super human, as Rajan was made out to be.

Raghuram Rajan, RBI governor. AFP

Raghuram Rajan, RBI governor. AFP

The new candidate will be someone ‘who keeps his head down and works’ and not make ‘unwarranted’ comments, beyond his pay grade, such as criticizing the incumbent government or commenting on socio-political issues and playing a social reformer. That, simply put, is the whole idea.

The Modi government never favoured the style of functioning of ‘rock star’ Rajan, even when it often acknowledged his contributions to the economy and his wisdom, mainly on controlling inflation.

The government’s approval to the 4 percent inflation target as proposed by the RBI is a proof of government agreeing with Rajan’s inflation stance, but not with his outspoken nature that often became an embarrassment for the government.

Seeing things in this perspective will help understand why the government gave a total freehand to BJP MP Subramanian Swamy to proceed with his infamous tirade to the point of personal insults and below-the-belt blows on Rajan. The government could have easily put an end to the Swamy show early, but that wasn’t the idea. Note that Swamy’s endeavor to do the same with chief economic advisor, Arvind Subramanian and economic affairs secretary, Shaktikanta Das, wasn’t encouraged and Swamy was even given a warning by Finance Minister Arun Jaitley in the very beginning. It was a no-go area for Swamy, who considerably softened his stance on fresh targets almost instantly. But, in Rajan’s case, the Modi government’s conscious decision to deconstruct the large-than-life image the RBI governor enjoyed was clear from the beginning.

The first strong signal of this came when PM Modi publicly said the issue of appointment of the RBI governor is an administrative process and not something that should be of media’s interest. Remember, when the PM said in this late May, even the international media was gung-ho about Rajan’s reappointment issue.

By discounting Rajan’s reappointment (or the appointment of his successor) as a mere administrative process and not of media’s interest, Modi effectively sent the message to the world that for his government, Rajan is not a ‘rock star’ but just another, replaceable RBI official who is supposed to do his job. And no matter what the media portrays on Rajan, the government isn’t in a mood to get carried away with the euphoria in favour of Rajan. Modi made that clear with a one line statement.

The second major sign of the government downplaying the l’affaire Rajan came when the governor, in June, announced his decision to not continue for a second term at the RBI through a farewell letter to his colleagues, in which he left enough hints that he was open to continue (had the government reciprocated properly). The media picked up this hint but the government had other plans. It wanted to, once again, downplay this potential controversy by instantly welcoming Rajan’s decision, dubbing it a personal decision and wishing him the best for his next venture. The hidden, unsaid message was this. “We let you continue at RBI through your term despite being an appointee of the previous UPA government. Thank you for your services, now let’s choose one of our own.”

The third important signal from the government on how it isn’t overly perturbed with Rajan’s exit or the appointment of the next governor came when it didn’t show any hurry to appoint his successor although two months have passed. One can argue that the government indeed had reasons to hurry with the announcement of a worthy successor to Rajan. There was bit of a panic among investors on who would be the next RBI governor, and there was uncertainty in the financial markets. There was indeed pressure on the government to speed up the decision and announcement. Instead, the government chose to go slow on the issue for some time and take a measured decision. Obviously the government didn’t want to act in a hurry and replace one Rajan with another.

As Firstpost reported Modi’s statement on 27 June in an interview to a television channel, ‘People should conduct themselves with utmost responsibility. If anybody considers himself above the system, it is wrong,” applied equally to Rajan, not just his critics like Subramanian Swamy.

Rajan came back to India with a rock star economist image who had predicted the 2008 global financial crisis. In the three years of his term at RBI, the governor showed he wasn’t like any of his predecessors. He actively engaged with society and often put on his alter-ego of an academic speaking on multiple issues, some of which had political implications. All of those comments were grabbed by the media and were given instant publicity. By doing this for a continuous period, Rajan positioned himself as a parallel prime minister in the system, which obviously didn’t go well with a government that came to power with a landslide victory.

The Modi government didn’t have to tolerate an outspoken RBI governor who often contradicts the PM or FM, making waves internationally. Hence, it decided to gradually deconstruct the image of a 'rock star' RBI governor to just another sarkari official step by step using the three-mode strategy listed above. Both the Modi government and Raghuram Rajan had their own genuine reasons to stay or not to stay. Both were right on those respective reasons. But both did not belong to each other.

First Published On : Aug 19, 2016 08:13 IST

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