Raghuram Rajan exit: RBI governor used as political ploy against Modi govt

With the announcement that the Reserve Bank of India (RBI) governor Raghuram Rajan will not continue in office when his term ends on 4 September, we will not be able to know now whether (or not) the Modi government was thinking of offering him an extension.

But if one goes by the reactions of the habitual Modi-bashers, who, in turn, dominate the national discourse, then it is the government that forced the exit of one of the outstanding economists of the world – who had done a great favour to India by becoming the governor of the RBI. With Rajan’s taking decision on his career move, Modi-bashers are having a field day.

 Raghuram Rajan exit: RBI governor used as political ploy against Modi govt

RBI governor Raghuram Rajan

I am writing this article after talking to a number of senior functionaries in the RBI. They unanimously agree that Rajan has been a wonderful boss. He has been a man with clarity of vision. But some say that Rajan could have avoided or been a little more circumspect on occasions when he made 'political or semi-political' remarks on the state of liberalism ('tolerance to dissents' in India under Modi, or pace of development under Modi, “one-eyed king in the land of the blind” as for him “the glass is half empty, not half full”).

Rajan was appointed by a different government (UPA) in 2013, and in India’s increasingly partisan politics, there will always be predictable political reactions; the Congress, Left and so-called liberals praising you sky high and those like Subramanian Swamy challenging your integrity. And this is precisely what has happened.

In other words, criticism over Rajan’s alleged ouster are based less on differing perceptions on economic issues between the Governor and the Government and more on their perceived political incompatibilities.

In fact, sources at the RBI say that contrary to press reports and what the politicians in opposition say, the Modi government has been extremely fair to Rajan and allowed him to have the last word on the monetary policy of the country.

Well, there have been occasions when there have been animated discussions between the officials in the Finance Ministry and those of the RBI over the anti-inflationary measures – such as cuts in rates of interests – but ultimately the views of Rajan have prevailed, with both Modi and Finance Minister Arun Jaitley standing by him.

It is true that two important policy objectives of Rajan – his targeting of the retail inflation as the main thrust of monetary policy, and his forcing of banks to come clean on the forces assets – have invited adverse reactions in many quarters, particularly from all those 'crony capitalists' who want cheaper interests but are reluctant to deposit their money in the banks.

The likes of Subramanian Swamy argue that Rajan has 'killed' the small and medium enterprises. However, my RBI friends say that in this 'battle against the RBI Governor', he has been fully supported by the Modi government, or at least by those who ultimately matter in this government.

One national newspaper, which, according to me, has played a leading role in the excessive politicisation of Rajan’s decision to move out, says in a report that the RBI Governor faced three 'hostile' ministers in the Modi cabinet, but nowhere in this report it has been mentioned who they are.

In another report by another correspondent, the same newspaper talks of Power Minister Piyush Goyal and Commerce Minister Nirmala Sitharaman 'taking broad swipes at Rajan'. This led me to Google these two ministers and their remarks on Rajan. And what did I find? Sitharaman had said in a press interview, when asked about Rajan’s remark on the government highlighting its achievement of 7 .5 per cent rate of growth (In the land of the blind, the one-eyed man is king. We are a little bit that way) that, “His choice of words, the metaphors that have been used, are unnecessarily giving a handle to people like Mani Shankar Aiyar to give quirky interpretations like ‘Who is this one-eyed king that Raghuram Rajan is referring to?’ I would like people like Raghuram Rajan, who know the truths behind the economy and the dynamics of the economy, to be able to speak with better choice of words,” Sitharaman said.

What do you expect a minister to do when asked questions like these? Will he or she say that his or her government is a non-performer? In fact, junior finance minister Jayant Sinha had also said at an event organised by industry body Assocham that, “I don't agree with what the governor said."

This did not mean that either Sitharaman or Sinha talked of the ouster of Rajan. In fact, Rajan himself subsequently clarified that he did not mean that the government was a non-performer. “My intent was to signal that our out performance was accentuated because world growth was weak, but we in India were still hungry for more growth,” Rajan said. Incidentally, Sinha is an old friend of Rajan’s -- they were class mates at IIT Delhi.

Regarding Piyush Goyal, I did not find any story on the web about his remarks on Rajan in the last two years. The one I found was a story from February 2014 in the Economic Times when Goyal, as a MP and member of the Parliament’s Standing Committee on Finance, had said that, “Governor Rajan is only aggravating the problems and making it worse by increasing interest rates.”

But the same Goyal changed his views in two months, when according to a Bloomberg story (it was also reported in many other papers), he assured that Raghuram Rajan’s job would be safe if the opposition-- the Bharatiya Janata Party came to power in the elections ending 16 May.

“Just because he’s been appointed by someone else doesn’t mean we have an agenda to remove him. No government can dictate to the central bank. It’s an autonomous body and he holds a constitutional position. We don’t have any likes or dislikes,” Goyal had said.

On the other hand, see the remarks made on Rajan by Finance Minister Jaitley and Prime Minister Modi. According to a report in the Hindu on 21 May, “Arun Jaitley has stepped in to put an end to the controversy sparked off by BJP leader Subramanian Swamy with a letter containing disparaging remarks about Reserve Bank Governor Raghuram Rajan to Prime Minister Narendra Modi."

"Seeking to 'pour cold water' over the issue, the Minister had a word with members of the BJP upset with Dr. Rajan for his bhashanbaji (rhetoric)…and explained to them that Dr. Rajan was ‘very bright.’ Earlier, speaking at an event organised by Indian Women’s Press Corps, the Finance Minister had said, ‘As far as the Finance Ministry and the RBI are concerned, there is an institutional relationship between the two... a very mature relationship…at the highest level the two institutions have discussion and each other’s views are considered between us," the report said.

Now, let us come to Prime Minister Modi’s views on Rajan. According to a report by India Today, Modi had called Rajan his 'best teacher' for explaining complex economic issues to him.

“The Prime Minister backed Rajan in the monetary policy panel's composition and blocking moves to strip the RBI's authority to regulate government bonds and manage public debt. Modi's office also directed the Finance Ministry to pursue only those policies where there was agreement with the central bank”, the report said.

Now, when the Prime Minister calls him his 'best teacher' in economics, the Finance Minister rates him as 'very bright' and the junior finance minister considers him as 'one of my best friends since college days', then it would not be wrong to presume that there were chances and indications that Rajan would have easily got an extension.

Therefore, it does not make any sense when one says that 'under fire from BJP, Rajan heads for the door'. Did the BJP president ask him to go? Did any BJP secretary or authorised party spokesmen say so?

True, Subramanian Swamy wanted him to go. It is also true that there have been murmurs within the BJP over what some thought were Rajan’s selective criticisms of the Modi government, criticisms that, as some of his colleagues admit, could have been avoided.

All told, Rajan never made any comment having political overtones during the previous UPA Government’s tenure. But, all told, his job was never in jeopardy, with the Prime Minister and Finance Minister reposing their faith behind him and the BJP, as a political party, avoiding any official position on him.

As views of a Digvijay Singh or a Mani Shankar Aiyar cannot be necessarily official lines of the Congress party, strong opinions of a Subramanian Swamy and his friends, cannot be described as the representative views of the ruling BJP.

National parties that the Congress and BJP are, there are many shades of thought in them. And that is how it should be in any large democratic organisation. The finality of a view is that which is official.

In my considered view, Rajan seems to have been a victim of those who claimed to be his friends. These friends, almost all of them being habitual Modi-bashers, succeeded in creating a climate for Rajan to distrust the government.

They are least interested in Rajan, who, in any case, has a secure future in Chicago University. Their main ploy was to score a political goal against Modi. And it has so happened that Rajan allowed himself to be the football in this political game.

Read: R3XIT was ugly, but Raghuram Rajan's going is not the end of the world

Read: Raghuram Rajan felt undermined in weeks before quitting

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Updated Date: Jun 20, 2016 21:20:14 IST