Raghuram Rajan, India’s icon who tripped
By Sugata Ghosh, ET Bureau
As the markets grapple with imponderables and New Delhi hunts for a credible face, to many, Rajan’s missive would come across as less than funny — even somewhat irresponsible, given its timing.
NEW DELHI: Raghuram Rajan had once said that he would like to carry back to classroom what he learnt in the world outside the campus. In September, when he heads back to Chicago — the mecca of many hard-nosed economists — he would carry with him lessons on just not monetary policy but also ones he picked from the unforgiving world of realpolitik. For the `rock star’ central banker, the autumn of 2016 could well be one of rumination. His announcement to quit is as dramatic as was his entry three years ago: no RBI governor had ever done an impromptu presser to rein in the rupee hours after assuming office; no governor in the history of the bank signed a media release to announce his exit. Rajan’s sense of drama is unmistakable.
Less than a week before the referendum on Brexit — a known unknown across financial markets — Rajan’s letter, replete with veiled hints that NEW DELHI wasn’t particularly keen to hold him back, could unnerve traders on Monday. A fortnight ago the governor had said it would be cruel of him to spoil the fun that media was having while speculating about his appointment. As the markets grapple with imponderables and New DELHI hunts for a credible face, to many, Rajan’s missive would come across as less than funny — even somewhat irresponsible, given its timing.
Rajan did what any self-respecting person would have done. The Governor saw the writing on the wall when he was left with little say in selection of his deputies and when New Delhi remained silent and a senior minister gave a guarded statement even as an unrestraint lawmaker — a gun for hire – relentlessly spew venom.
This is why Rajan would be fondly remembered by his admirers though the Governor has had his share of failures and was certainly not the best man to have occupied the 18th floor office of the Mint Street tower. But his visible earnestness, brilliant one-liners and forthcoming demeanour often masked the foibles of the central bank. His critics, though far outnumbered by his supporters – who attacked the government and twitted their resentment on Saturday – have had their points. Rajan’s monetary policy was flawed as he kept money markets gasping for liquidity while lowering interest rates – a style that never allowed free transmission of rate cuts through the banking system; it was only in the third year of his job that Rajan changed tack, but perhaps, it was too late by then; his drive to clean up banks – though unanimously accepted as the need of the hour – was pushed through in a way that left large high-street banks running for cover; and some of the companies which once rushed to bag license for running payment bank – widely perceived as one of Rajan’s smartest measures to spread financial inclusion – have returned the license.
But such criticism, though valid, was lost as it was aired by businessmen and politicians who lacked integrity: debt-laden promoters, wilful defaulters and politicians, some of whom known for their proximity to business groups. Thus, to Rajan’s votaries, his sudden decision to discontinue would go down as a defeat in the hands of India’s crony capitalists. When tainted men, attack a person of immaculate pedigree the vanquished (despite his flaws) ends up as the victor. If Rajan was overhasty and unwonted in putting his quit-notice in public domain, the government’s inept handling of the situation and displaying its dislike for the governor was curiously amateurish.
Rajan, few may notice, would leave behind an RBI where the role of the Governor – particularly as far as monetary policy goes – has diminished: the policy would now be decided by a committee with the Governor (even if considered as first among equals) having a casting vote. The larger job for the next governor is banking reforms.
Rajan’s decision would make markets choppy but it would be simplistic to fear that it would make the rupee a runaway currency and drive foreign portfolio managers out of equities and debts. RBI is an institution and even if there is a kneejerk sell off in stocks, there is little to believe that overseas fund managers are any different from Dalal Street punters who will go long when the government is stable, growth is good and reforms are visible. Outcome of state polls and macro numbers – rather than the choice of Governor – would influence markets in future.
With Rajan’s letter dominating the social media, New Delhi has the unenviable task of choosing the next Governor. Weekend speculations have thrown up names like SBI chief Arundhati Bhattacharya, former cag head Vinod Rai, chief economic advisor Arvind Subramanian, deputy governor Urjit Patel and former DG Subir Gokaran as possible successor to Rajan. Perhaps, the PMO has already made up its mind. But till now and across disparate governments, the appointment of RBI governor has been the only decision that has been least influenced by the byzantine intrigue of Delhi, its formidable club of babus, and the pressures of large business groups. It would be a pity if that changes.