Controversy surrounding RBI Governor Raghuram Rajan was totally avoidable: Yashwant Sinha

In an interview to ET Now, Yashwant Sinha, Former Finance Minister, shares his views on the recent controversy surrounding RBI Governor Raghuram Rajan not extending hisn tenure. Edited excerpts:
ET Now: What are your thoughts on RBI Governor Raghuram Rajan not extending his term?

Yashwant Sinha: If you recall the media reports and comments which were being made before the governor made this announcement, you will find that everyone was predicting doom for India.

ET Now: Were those fears overexaggerated?

Yashwant Sinha: Absolutely. I mean this country has seen famous prime ministers pass away, been unseated and therefore a big country like India cannot be dependent just on one individual.

ET Now: I will tell you why there were these comments being made. It was because Raghuram Rajan was under the personal attack by Subramanian Swamy and the government of day did not really come to his defence and by his defence I mean to the defence of India's central banker, to the defence of the RBI or the institution that he largely represents and that caused some amount of concern. Did it concern you?

Yashwant Sinha: If I remember right, the finance minister came out quite openly in support of the governor and at one time the prime minister also spoke about it and he said that the fact whether he is going to get a second term or not is an administrative matter and it is best left to those who are going to decide that matter. So this controversy was perhaps entirely unnecessary and was easily avoidable. This gave it a hype which was not called for.

ET Now: Do you believe the short-term impact of a Rexit as it was being called globally? The rupee did not fall as it has been predicted. Stock markets did not crash. But from a medium to long term, it could perhaps dent at least the image of India, that we do not support people who have view of their own in offices and the counter argument to that is do you believe Raghuram Rajan breached his brief?

Yashwant Sinha: I will not the answer the second part of your question, it is for Raghuram Rajan to make a judgement. But as I like to repeat what I have said to you earlier, a governor of the Reserve Bank is a governor of the Reserve Bank. He is not the Prime Minister of India.

He is not even the Finance Minister of India. He has a role which is well defined in our system and he has to perform that role. Most governors have performed that role very ably and there has been no problem. If there has been an issue with Raghuram Rajan as I said, it was because of the hype which was created both because of the controversy which was raised about him and also because some of his own statements.

The whole thing was entirely avoidable and then this build up that if Rexit were to take place as some people described it, then India will collapse, its economy will be ruined. I mean when we looked at, I looked at such stories and comments in the media, I was aghast because this country is much bigger than an individual.

ET Now: Many people thought during his tenure in the RBI over the last three years, he was inflation warrior. Now we can be on both sides of the argument but he did... first time inflation targeting happened in India, he went after the bank NPAs. Do you believe his exit - a) makes both those arguments a little redundant today and that is the fear that the market has?

Yashwant Sinha: Personally, I feel that inflation targeting is a good objective, but what kind of inflation. You cannot target food inflation. You should not target food inflation. You should target the wholesale price index and if the wholesale price index is in the negative territory and food inflation is 5%, 6% or even more, then what are you going to achieve through monetary tightening.

There are only two things you can do in monetary policy - one is raise interest rates or go for liquidity squeeze. Both hurt. They do not hurt the person who is buying food. They hurt those who want to make investment.