Raghuram Rajan's exit: A targeted campaign led to RBI governor's decision
The world will question why was an extremely competent and capable man as Rajan not given a second term and how will the government explain that, I wonder, writes former banker Meera Sanyal.
The campaign mounted against RBI Governor Raghuram Rajan is extremely regrettable. There is no doubt that the targeted campaign against him has led to the governor's decision to not continue his tenure.
I have been fortunate to work with three RBI governors -- YV Reddy, Subba Rao and Raghuram Rajan. One of the things I felt as a banker is that India is extremely fortunate to have an institution like the RBI which has an independent stance vis-a-vis the government. There have often been reports in the media stating a tension between the Central government and the RBI. I think that it is a healthy tension. It is the role of the RBI to ensure stability of the monetary policy and keep inflation under control. The institution has carried out that role brilliantly over the years.
The way the present governor was attacked personally and professionally was extremely unseemly.
Rating Rajan as a governor
I have worked with three RBI governors and each of them have served the institution and the country well. However, Rajan has exceeded all excellent governors at the RBI. He is the best central bank governor for India. Look at his achievements: he has kept inflation under control, the rupee has stabilised and forex is at extremely high levels. I would have thought this government would have embraced a second term for the governor. The government's much-talked about Make in India programme that aims to provide more jobs, create more entrepreneurs and inspire confidence in foreign investors can only take off for India if inflation is stabilised, macro economy is stabilised and foreign exchange is stabilised. All this can happen only if the banking system in the country is robust. This governor has laid bare NPAs and taken steps to make banks healthy again. No other country in the world has been able to do this.
It is unfortunate for the Indian economy if the RBI's independence and integrity is hampered. Especially in the troubled times like today: Brexit next week, volatility in international oil prices, the two-year drought in many parts of the country and no sign of monsoons yet. All this can create a lot of uncertainty. The targeted campaign against the governor in these situations is completely unnecessary and unbelievable too.
Individuals and institutions equally important
Individuals do matter just as institutions. Rajan is recognised as a brilliant economist and has helped markets in India, inspired confidence in the economy and the country and also of investors abroad. If you want a programme like the Make in India or the slew of other programmes aimed at improving the economy and the people of India, then Rajan is the kind of governor you need to inspire that confidence in the people, the government and foreign investors. It is inexplicable how the government has treated the present governor. I don't think Swamy would have independently gone against Rajan without the backing of the government. Jaitley's statement on Rajan's desire to go back to academics makes it clear that the government did not want to give him a second term. So, Swamy was definitely not acting on his own.
Government's intervention in RBI
The government has been making systematic interference in the independence of the RBI. If you look at the case of deputy governor HR Khan's extension, that was the prerogative of the governor but he was not consulted. It is not about the governor alone, it is about the government interfering with the integrity and competence of an institution like the RBI that is of grave concern.
Targeted campaign makes job for Rajan's successor difficult
The dice has been cast. There will be a period of instability for sure. I remember what Subbarao told me when he was stepping down and I had gone to meet him. When he was appointed, there were much talk about how he was a government appointee as he was finance secretary before becoming the RBI governor. But he took a tough stance against the government during the financial crisis. I mentioned about that to him then. His reply was unforgettable. He said, "Meera, this is an institution with integrity, independence and professionalism." I think that is what the RBI is about. The independence of the RBI is paramount from an economic and banking perspective. I believe the RBI is a strong institution and can withstand political pressure.
This is a country of extremely talented people and I am sure the government will find a person of capability and integrity to head the RBI. But will it get anyone with the international reputation and stature of Rajan is the question. The world will question why was an extremely competent and capable man as Rajan not given a second term and how will the government explain that, I wonder.
(Meera Sanyal is the former CEO and chairperson of Royal Bank of Scotland in India. She had interacted with Raghuram Rajan in that capacity.)
- As told to Sulekha Nair
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