Did RBI Governor Raghuram Rajan want shorter second stay?

NEW DELHI: Raghuram Rajan may have got another term as head of the Reserve Bank of India but he would apparently not have been available for the period that the government wanted him. That possibly led to Rajan’s unexpected announcement on June 18 that he would return to academics when his three-year term ended in September, said a senior official.

Although he’d held consultations with the government on the matter, the timing of the announcement is said to have caught many by surprise, especially as it came ahead of the June 23 referendum in the UK on EU membership, the outcome of which is of global financial import.

"The government was offering another regular term but he was available only for a shorter duration," said the person cited above, which may clarify a key part of Rajan’s statement related to the central bank's unfinished tasks such as inflation control and banks' bad loans.




In his letter to staff, the governor had said: "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."

This had been interpreted by some to mean that Rajan wanted a second term and that the government was not keen on giving him an extension.

Discussions with Rajan were held at the highest level and not many people are aware of details.

Moreover, as mentioned by top government officials previously, such decisions are usually announced closer to the date unlike the west. UK Sinha's reappointment as chairman of the Securities and Exchange Board of India, for instance, came close to the end of his first term.

There have been reservations against some of Rajan’s public comments — particularly the one urging caution against excessive euphoria about India's growth rate — in some quarters of the ruling Bharatiya Janata Party, but Finance Minister Arun Jaitley has always publicly backed him.

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Even on the issue of interest rates, the finance ministry has refrained from making public statements and went by the RBI's view on the establishment of an independent debt management office.

As per the RBI Act, the governor can be appointed for a maximum tenure of five years and is eligible for reappointment. Rajan had been appointed for a three-year term beginning September 4, 2013, by the previous United Progressive Alliance government.

It’s not clear if the government offered Rajan a full five years in office or another two years, adding up to five years.

Rajan is on leave from the University of Chicago where he is professor of finance at the Booth School of Business.

BJP’s Rajya Sabha member Subramanian Swamy had launched an oust-Rajan campaign with a series of attacks that questioned the governor's patriotism and accused him of economic sabotage. Rajan has never responded to the charges and the government didn't acknowledge them either. BJP president Amit Shah had backed Rajan when asked to comment on Swamy's statement.

"We will take our decisions without being influenced by any other factor," Finance Minister Jaitley had said when asked about the attacks against Rajan and the opposition to giving him a second term.