No 2nd term: Will go back to academia, Raghuram Rajan in farewell letter

Ending all speculation whether there would be a second term as the head of the Reserve Bank of India when his term finishes on 4 September, RBI Governor Raghuram Rajan in a message to the RBI staff made it clear that he “will be returning to academia when my term as Governor ends”.[caption id=“attachment_2784936” align=“alignleft” width=“380”] RBI Governor Raghuram Rajan. Reuters[/caption] However, Rajan also said, “I will, of course, always be available to serve my country when needed.” Of late, the RBI Governor was facing intense criticism from BJP leader and Rajya Sabha MP Subramanian Swamy who called him unfit for the post. However, Finance Minister Arun Jaitley did say that whatever Swamy was saying was not the government’s line. Even BJP president Amit Shah did not agree with Swamy. Swamy had in May this year written to Prime Minister Narendra Modi asking him to terminate Rajan’s tenure. “The reason why I recommend this is that I am shocked by the wilful and apparently deliberate attempt by Dr Rajan to wreck the Indian economy,” he wrote adding his concept of raising interest rates to contain inflation was “disastrous”. Also, bad loans with public sector banks has doubled to Rs 3.5 lakh crore in two years, the BJP MP said in the letter. Rajan was appointed RBI Governor by the previous UPA government in September 2013 for a three-year term, which can be extended. “These actions of Dr Rajan lead me to believe that he is acting more as a disrupter of the Indian economy than the person who wants the Indian economy to improve. “Moreover he is in this country on a Green Card provided by the US government and therefore mentally not fully Indian. Otherwise why would he renew his Green Card as RBI Governor by making the mandatory annual visit to the US to keep the Green Card current?” he wrote. Swamy in the letter to Modi said the BJP came to power under his inspiring leadership. “I cannot see why someone appointed by the UPA Government who is apparently working against Indian economic interests should be kept in this post when we have so many nationalist minded experts available in this country for the RBI Governorship.” He urged Modi “to terminate the appointment of Dr Raghuram Rajan in the national interest.” On May, it was the third time Swamy had spoken against Rajan. The first time he spoke was before the general election of 2014. “We can make it worthwhile for him to leave,” Swami had told Reuters, in a veiled threat that once the BJP comes to power Rajan may be shown the door. Just less than a week ago before his mid-May outburst, Swamy had even earlier trained his guns on Rajan saying that he was not fit to be the RBI governor. “I think the RBI governor is not quite right for our country. I don’t want to say much about him, but his decision to increase interest rates so as to cut down inflation and stabilize the economy, has backfired and has badly affected the nation,” Swamy had said. The BJP leader had also alleged that all the industries have collapsed because of Rajan’s mistakes and unemployment has increased. Swamy also did not find Rajan’s plans on Islamic Banking convincing and wanted them to be stopped. https://twitter.com/Swamy39/status/732743448415993856 Following is the full text of Rajan’s message to the RBI staff: “Dear Colleagues, I took office in September 2013 as the 23rd Governor of the Reserve Bank of India. At that time, the currency was plunging daily, inflation was high, and growth was weak. India was then deemed one of the “Fragile Five”. In my opening statement as Governor, I laid out an agenda for action that I had discussed with you, including a new monetary framework that focused on bringing inflation down, raising of Foreign Currency Non-Resident (B) deposits to bolster our foreign exchange reserves, transparent licensing of new universal and niche banks by committees of unimpeachable integrity, creating new institutions such as the Bharat Bill Payment System and the Trade Receivables Exchange, expanding payments to all via mobile phones, and developing a large loan data base to better map and resolve the extent of system-wide distress. By implementing these measures, I said we would “build a bridge to the future, over the stormy waves produced by global financial markets”. Today, I feel proud that we at the Reserve Bank have delivered on all these proposals. A new inflation-focused framework is in place that has helped halve inflation and allowed savers to earn positive real interest rates on deposits after a long time. We have also been able to cut interest rates by 150 basis points after raising them initially. This has reduced the nominal interest rate the government has to pay even while lengthening maturities it can issue – the government has been able to issue a 40 year bond for the first time. Finally, the currency stabilized after our actions, and our foreign exchange reserves are at a record high, even after we have fully provided for the outflow of foreign currency deposits we secured in 2013. Today, we are the fastest growing large economy in the world, having long exited the ranks of the Fragile Five. We have done far more than was laid out in that initial statement, including helping the government reform the process of appointing Public Sector Bank management through the creation of the Bank Board Bureau (based on the recommendation of the RBI-appointed Nayak Committee), creating a whole set of new structures to allow banks to recover payments from failing projects, and forcing timely bank recognition of their unacknowledged bad debts and provisioning under the Asset Quality Review (AQR). We have worked on an enabling framework for National Payments Corporation of India to roll out the Universal Payment Interface, which will soon revolutionize mobile to mobile payments in the country. Internally, the RBI has gone through a restructuring and streamlining, designed and driven by our own senior staff. We are strengthening the specialization and skills of our employees so that they are second to none in the world. In everything we have done, we have been guided by the eminent public citizens on our Board such as Padma Vibhushan Dr. Anil Kakodkar, former Chairman of the Atomic Energy Commission and Padma Bhushan and Magsaysay award winner Ela Bhatt of the Self Employed Women’s Association. The integrity and capability of our people, and the transparency of our actions, is unparalleled, and I am proud to be a part of such a fine organization. I am an academic and I have always made it clear that my ultimate home is in the realm of ideas. The approaching end of my three year term, and of my leave at the University of Chicago, was therefore a good time to reflect on how much we had accomplished. While all of what we laid out on that first day is done, two subsequent developments are yet to be completed. Inflation is in the target zone, but the monetary policy committee that will set policy has yet to be formed. Moreover, the bank clean up initiated under the Asset Quality Review, having already brought more credibility to bank balance sheets, is still ongoing. International developments also pose some risks in the short term. While I was open to seeing these developments through, on due reflection, and after consultation with the government, I want to share with you that I will be returning to academia when my term as Governor ends on September 4, 2016. I will, of course, always be available to serve my country when needed. Colleagues, we have worked with the government over the last three years to create a platform of macroeconomic and institutional stability. I am sure the work we have done will enable us to ride out imminent sources of market volatility like the threat of Brexit. We have made adequate preparations for the repayment of Foreign Currency Non-Resident (B) deposits and their outflow, managed properly, should largely be a non-event. Morale at the Bank is high because of your accomplishments. I am sure the reforms the government is undertaking, together with what will be done by you and other regulators, will build on this platform and reflect in greater job growth and prosperity for our people in the years to come. I am confident my successor will take us to new heights with your help. I will still be working with you for the next couple of months, but let me thank all of you in the RBI family in advance for your dedicated work and unflinching support. It has been a fantastic journey together! With gratitude Yours sincerely Raghuram G. Rajan”