More than the status-quo on the policy rates, Reserve Bank of India (RBI) governor Raghuram Rajan’s silence on the controversies surrounding his reappointment and BJP leader Subramanian Swamy’s personal attacks on him, turned out to be the highlight at the post policy presser on Tuesday.
It tells us that Swamy has failed to drag the governor into the boxing ring.
Expecting questions on this issue, Rajan read out a written statement that broadly meant this. Let media continue to have the fun. I'm not commenting on this issue. It will be settled quietly.
Rajan’s silence is an obvious disappointment to Swamy who draws strength from his opponent’s ability to stand up and fight back (remember his attacks on Gandhis on the Agusta issue). A mute opponent kills the fighting spirit and fun for the fighter inside Swamy.
Rajan said he would not like to say anything more than what Prime Minister Narendra Modi and Finance Minister Arun Jaitley have said on his reappointment issue.
Modi hasn’t said much on the Swamy-Rajan issue except that the RBI governor’s reappointment is an administrative issue and it shouldn’t be of media interest, whereas Jaitley has denounced Swamy’s attack on Rajan saying personal attacks in public shouldn’t be the way to criticise someone.
There are, however, reasons to believe that Swamy isn’t alone in his battle.
As Firstpost noted in an earlier article, clearly Swamy’s disagreement with Rajan focuses on the way Rajan has conducted the monetary policy.
It is a foregone conclusion that a section in the government and the BJP is unhappy with Rajan’s blatant criticism on a range of issues including the accuracy of GDP data, comments that weaken the supremacy of India’s economic growth internationally and his apprehensions on the government’s various policy initiatives.
It is not just Swamy in the party who has criticised Rajan. Other BJP leaders, including Minister of State for Finance Jayant Sinha and Commerce and Industry Minister Nirmala Sitharaman, have openly criticised Rajan’s stance on the economy's performance.
When senior party members question Rajan’s performance under the leadership of Swamy, it is relatively easier for the government to explain its decision not to offer a second term for Rajan. But, Modi himself has praised Rajan’s work in the past and has given a freehand to the governor to do his job until now.
Rajan’s matured silence on Swamy and his focus on the key issues at hand in the presser makes one thing clear. He remains a thorough professional and not someone who goes out to the media and unleashes a counter attack on his opponent, which is precisely what Swamy did. Rajan spoke at length on his challenges at this juncture such as further monetary policy transmission, possibility of FCNRB redemption-related liquidity pressures in the market by September-October and the upside risks to inflation.
At this stage, when a critical transformation - such as modernisation of the banking sector, monetary policy reforms process and NPA clean-up - is underway, there isn’t an easy replacement for Rajan with someone with as sharp a global perspective, vision and courage to call a spade a spade even if it means criticising the government.
The issue of Rajan’s continuation has already created visible uncertainty in the financial markets and industry. Many international experts have spoken out in support of a second term for Rajan.
As Firstpost has noted in the past, there is a strong case for the Modi government to offer another term to Rajan to ensure continuity of the ongoing structural reforms in the banking sector, clean-up of bank balance sheets and, more importantly, to reassure investors that the RBI continues to be an independent institution.
For the Modi government, with its focus on reforms, Rajan is a great enabler to progress on the reforms path. If Swamy’s first round of attack on Rajan was a one-man show, the government has sent a wrong signal to the outside world by not gagging Swamy before his second round of attack on Rajan that was more personal and ugly.
Before the maverick leader prepares ground for his next round of attack on the RBI governor, Modi should put an end to the uncertainties by acknowledging Rajan’s contributions and gagging the motor mouths in the party.
Rajan's work at the RBI speaks for him.
As the governor, Rajan has restored the confidence of global investors in the Indian economy, arrested the rupee’s free fall (the rupee was near its all-time lows of 68.85 which it hit in August 2013), replenished the Forex reserves kitty and brought down retail inflation from the near double digits to the current manageable levels (around 5 per cent now). More importantly, he has forces banks to declare their hidden bad loans.
PM Modi would do well if he makes it clear once and for all that unsubstantiated allegations, even from the BJP's senior leadership, will not influence the government’s decision on Rajan’s reappointment when the governor's term comes to an end in September.