Raghuram Rajan deserves second term at RBI, says Princeton University economist

NEW DELHI: Backing a second term for RBI Governor Raghuram Rajan, leading Indian-American economist at Princeton University Avinash Dixit said the apex bank chief should have "full operational independence" when it comes to pursuing targets on employment, growth and inflation.

When asked whether Rajan should be given extension, Dixit said, "Yes, definitely. I think Raghuram Rajan deserves a second term as the RBI Governor, he should have full operational independence in pursuing targets (inflation, employment or growth)."

Rajan, who was appointed by the previous UPA government for a three-year term that began on September 4, 2013, has been under attack from some quarters of BJP, including its Rajya Sabha MP Subramanian Swamy, for what they term as his failure to lower interest rates and boost economic growth.

A former chief economist at the International Monetary Fund ( IMF), Rajan is currently on leave from the Chicago Booth School of Business, where he holds the post of Distinguished Service Professor of Finance.

As an outspoken RBI Governor, Rajan has expressed his views on host of issues, including intolerance and has even described India as 'one-eyed king' in the land of blind in reference to the country's high economic growth.

If denied extension, he will be the first RBI Governor since 1992 to not have a five-year term. His predecessors D Subbarao (2008-2013), Y V Reddy (2003-2008), Bimal Jalan (1997-2003) and C Rangarajan (1992-1997) had five-year terms.

Recently, Prime Minister Narendra Modi said the issue of reappointment of the RBI Governor was an administrative subject and it should not be an issue of interest of the media.

Rajan, who after taking over raised the short-term lending rate from 7.25 per cent to 8 per cent and retained the high rates throughout 2014, began the process of lowering the rates in January 2015. He has since then cut rates by 1.50 per cent to bring down to 6.50 per cent.

Last month, the Parliament passed Finance Bill 2016 which contained an amendment to the Reserve Bank of India Act of 1934 giving the central bank a mandate to target inflation.

The six-member monetary policy committee (MPC), which will include RBI Governor and three nominees of the government, will set interest rates to bring consumer or CPI inflation to pre-set targets.