Sunday, June 19, 2016

RRExit - The exit of Raghuram Rajan, Governor of Reserve Bank of India

The referendum on Britian's possible exit from the European Union taking center stage over the past few weeks and the term #Brexit becoming a trending topic on Social Media forms the background to this post. For, at about the same time, the story about Raghuram Rajan's impending exit broke, and thanks to the wit of India, we have the tongue-in-cheek term #RRexit being coined. 

As usual, the reactions have been on predictable political lines, with UPA and left leaning politicians heaping praise on Rajan and heaping scorn on NDA for not retaining a truly great RBI Governor, and NDA politicians happy to see his back. Like former Finance Minister P Chidambaram who was responsible for the appointment of Rajan, said that he was not 'surprised' by the development. "This government did not deserve Dr Rajan. Nevertheless, India is the loser," Nobel laureate economist Amartya Sen said, "It is unfortunate if Rajan's exit is because some government member is against him. His exit is a huge loss." I guess Politicians will be politicians (Sen included), and their vision is always blinkered by agenda or the next poll, but I was surprised and disappointed with the reactions of many of the Business Honchos like Infosys founder Narayana Murthy who said Rajan deserved more dignity than what he was treated with. "Believe we need the help of every smart Indian to remain on current growth path." HDFC chairman Deepak Parekh said, "It's a pity to lose him. I'm wondering what has precipitated this action by the governor. I am sure the government, at the right time, would have considered giving him another two years term as most governors have got." Even a visible supporter of the NDA like Mohandas Pai tweeted that it is a "very sad day for us great talent driven away by alcontents, cronies...deeply concerned."

In addition to Indians and Indian Politicians, we have the international press and some world leaders predicting that #RRexit coupled with the possible #Brexit would unsettle India, and lead to a fight of capital from here to other markets.

I firmly believe that all these reactions are a little unfair. There is no doubt about the credentials of Raghuram Rajan. My reading is that he is an amazingly well put-together and intelligent economist, but one has to admit that he is essentially, a left leaning one. He was a good professional addition to the UPA government and was perhaps it's only shining light, considering all the scams and economic downturns we had to face over the two terms of the UPA.

However, one must now acknowledge that India has overwhelmingly voted for a Right of Center dispensation and it is quite evident that their Economics and Rajan's Monetary Policies do not jell. So many times, the Government and the RBI has not seen eye to eye, especially on Inflation and Rate Cut policy. So one has to agree, that while he may be a great guy, but currently, he is obviously an unsuitable candidate, in the perception of the current dispensation. 

I'm not surprised that he was perhaps asked to go. I firmly believe that with every regime change, all appointees of the previous dispensation must offer to tender their resignation and await reappointment by the new Government. It would be the professional thing to do. Unfortunately, that is not a practice in India, and appointees seem to think that they are somehow required to hold on to their posts and push the earlier dispensations' agenda. This needs to change.

The NDA has an overwhelming mandate to rule India as they see fit and they have to prove that their approach, in terms of Fiscal Policy and Governance is better for the nation than the ones pursued by the earlier Government, and has to do so within 5 years. Hence, there is no argument that they need to have all their Tools, Tackles and Workmen exactly as they want them to be. It is only fair that it is so.

I further believe that Rajan was foisted on the nation in the last year of UPA rule for a 3 year term and that was not perhaps the ideal thing to do. They could very well have given him 2 or 3 terms when they were ruling but chose not to. It is patently unfair of them to expect the NDA to do so. However, having said all this, one fervently prays that the choice of person will be apt and worthy of the position that being the Governor of the Reserve Bank of India bestows on him / her. The next few weeks will be really interesting!


  1. Agree with the view that when a Government changes, the entire caboodle must move out. But that being said, the NDA also has to bring in Appointees of merit, not sycophants. The last few appointments have only led to the growing realisation that the shoes are being filled with candidates of little or nil competence, being pushed into Chairs way too big for their butts.

    1. Dear Praveen,

      Thanks much for visiting my blog and leaving a comment. I am totally in agreement that Governments must find the right profile of person to fill in important posts.

      its true that recent appointments to CBFC, NIFT and FTII have been iffy, but I would put the biggest monumental blunder of not giving a second term to a deserving candidate / appointment Bloomer of History as the replacement of the Finest President we ever had A.P.J Abdul Kalam with a disaster like Smt. Pratiba Patil.