May 31, 2023

After much soul searching and discussions with the government, Dr Raghuram Rajan has decided to return to academia once his current tenure as Reserve Bank of India governor ends in September this year. While this is sad news as far as financial markets in India are concerned, it is not as earth shattering as the media and the Congress would have us believe. Rajan was no doubt the best man at the best place and at the best time. He has steered the Indian economy through a difficult patch with elan. His achievements in controlling inflation and convincing the government in maintaining fiscal prudence have been instrumental in keeping growth at a healthy rate. While industry has been cribbing about his steadfast refusal to lower interest rates, Dr Rajan has held his own on the grounds of not unleashing undue inflationary pressure through easy liquidity. His unfinished work in cleaning up the act of PSU banks and introducing a semblance of responsibility in the banking system was exemplary and needs to be taken to its logical conclusion by his successor.

Having said this, two things need to be kept in mind. The RBI governor can only be effective if he has a supportive government to back him. Also, an elected government will always need someone with whom it is on the same page to carry out its agenda. For the last few months, it was clear to everyone that despite the enormous respect Dr Rajan commanded, somehow the government felt that its agenda was not being carried out at the required pace. Also, despite the immense knowledge and talent Dr Rajan brought to the table, it is not as if an equally efficient person cannot be found for the position. The committee tasked with finding his successor should do so quickly and without bias, ignoring political pressures to find the most suitable person for the job.

What has rankled, and will perhaps hurt Dr Rajan no end, is the fact that he was hounded out for no fault of his own. Instead of letting loose the likes of Dr Subramaniam Swamy – who even questioned his patriotism – on the governor, the government should have quietly had a talk with the man and told him that he no longer fitted in its scheme of things. But this government has made it a habit of generating unnecessary controversy where none exists. While PM Modi is not realizing it, these controversies are giving his government a bad name and are taking the focus away from what he wants to achieve. As for the Congress, former finance minister P Chidambaram quipped that Modi did not deserve Rajan. Maybe he did not. Again, maybe Modi deserves a better RBI governor, a person who can fast track his government’s developmental agenda.