Modi government mulls if RBI at all needs a chief with a profile as high as Raghuram Rajan's

NEW DELHI: The irony about RBI governor Raghuram Rajan's decision not to seek a second term is that it comes when his relations with the Modi government had settled on an even keel after prolonged friction over interest rates and Rajan's breezy comments on NDA 's ambitious projects like Make in India.

There was a time when Rajan's comment that low inflation rather than public pleadings will drive rate cuts left the government fuming but slowly the rough edges smoothed out as both sides got a hang of one another.

Also read: Why Rajan chose to leave and how his exit will affect financial markets

The events that mark Rajan's relations with the government and the behind-the-scenes action remain subject of speculation: Did a former finance secretary's communication with the RBI boss lack finesse and border on being uncivil? Did Rajan's profile as an economic savant see him overstep the traditional confines of his office?



Some of these questions may remain unanswered. But while Rajan was open to continuing, this didn't come to pass. If he was seeking a clarification on a second term, there was none forthcoming. Rather, the unambiguous signal was that the appointment was part of due process, with PM Narendra Modi calling it an “administrative decision“.

A view in government is whether the RBI job needed a high profile at all. “The job is about judgement calls of a certain sort. It may not need a Nobel winner,“ noted a source.RBI's successes include managing what was a precarious external sector and stabilising the rupee but opinion is divided on Rajan's aggressive handling of bank NPAs.

Rexit: Raghuram Rajan's letter to RBI staff

At the time Rajan announced his decision, there was no instruction to the search committee headed by the cabinet secretary to begin shortlisting candidates. “The committee would have considered Rajan and also whether there could be other nominees. There was nothing fixed about what course was to be adopted,“ said a source.

What complicated matters was Subramanian Swamy's harangue against Rajan.Questions arose whether Swamy was fronting for the government. Sources say even if the government was keen to indicate that the importance of no one individual could be overstated, there was no reason to unleash Swamy on him.

The government and RBI agreed on important decisions like forming a committee to fix interest rates and Rajan said his interactions with Arun Jaitley were cordial. His departure may well be weighed in terms of whether his successor enjoys similar credibility and heft. For all the media turbulence, Rajan signed off on a successful note. “Finally , the currency stabilised after our actions, and our foreign exchange reserves are at record high...Today , we are the fastest growing large economy in the world, having long exited the ranks of the Fragile Five,“ he told colleagues.

Swamy tries to corner credit
Subramanian Swamy greeted Raghuram Rajan's decision not to seek a second term with a gleeful tweet: “R3 has said he will go back to US. Whatever fig leaf he wants for hiding the reality we should not grudge it.Say goodbye!“ Swamy would clearly like to corner credit for the governor's exit, having called on him to resign. In letters to PM Modi, the BJP MP had said Rajan was visiting the US to renew his green card.