RBI governor Raghuram Rajan said on Saturday he won’t seek a second term after September, a surprise move by the “rock star” central banker who has been a darling of foreign investors but criticised by opponents at home for keeping interest rates too high.
Rajan’s announcement that he will return to academia could undermine investor confidence in the economy, as industry backed him for a second three-year stint over his efforts to tame inflation and stabilise the rupee. He was also in the middle of a clean-up of massive bad loans in state-run banks.
“While I was open to seeing these developments through, on due reflection and after consultation with the government, I want to share with you that I will be returning to academia when my term as governor ends on September 4,” the 53-year-old wrote to the RBI staff in a 900-word letter.
“I will, of course, always be available to serve my country when needed.”
The Reserve Bank of India made Rajan’s letter public on its website and Twitter, citing the “significance of the matter”.
Hours later, finance minister Arun Jaitley said the government appreciated Rajan’s “good work” and respected his decision to step down. “A decision on his successor would be announced shortly,” he tweeted.
A Reuters report named State Bank of India chief Arundhati Bhattacharya, former deputy RBI governor Rakesh Mohan and former finance secretary Ashok Chawla, among others, as Rajan’s possible successor. HT could not independently verify the report.
Rajan’s announcement came after months of tension with the government, especially over the question of cutting interest rates. Rajan was accused of hurting economic growth by holding interest rates but his supporters pointed out that he regularly slashed rates without taking his eyes off inflation.
Cutting interest rates boosts growth because loans to industry become cheaper.
Rajan enjoys a mass appeal not normally associated with a banker, and has been dubbed “rock star Rajan” and India’s “James Bond” as much for his intellectual calibre as for his handsome looks.
“I am Raghuram Rajan and I do what I do,” he famously told reporters in December after nixing criticism by delivering a 0.5% rate cut, double the market expectation.
Top industry leaders said they were sad to see him go with many adding that Rajan deserved more dignity than he was given.
“It’s a pity to lose him. I’m wondering what has precipitated this action by the governor,” said HDFC bank chairman Deepak Parekh.
An appointee of the previous UPA administration, Rajan took over the RBI when India was facing its worst currency crisis since the 1990s.
Since then he has been credited with helping to stabilise the currency, restore foreign investors’ faith in policymaking and lowering inflation and the current account deficit sharply.
But he faced stiff opposition from sections of the ruling NDA administration. In May, BJP parliamentarian Subramanian Swamy wrote to Prime Minister Narendra Modi, saying the RBI chief should be sacked as he was “mentally not fully Indian”.
Last year, Rajan attracted criticism from government supporters after he called for tolerance following the mob lynching of a Muslim man in Uttar Pradesh over rumours that he slaughtered a calf.
In April, he compared the state of India’s economy with a one-eyed king in the land of the blind, signaling that there was room for policy improvements in the world’s fastest-growing major economy.
The opposition Congress rushed to blame the government for appearing to force Rajan out through a campaign of “insinuations, allegations and attacks”.
“Prime Minister Narendra Modi knows everything. He has no need for experts like Raghuram Rajan,” @officeofRG, the handle of Congress vice-president Rahul Gandhi’s office, tweeted.
Rajan succeeded D Subbarao as the 23rd governor of the RBI after a successful career in academia and at the International Monetary Fund, where he earned laurels for predicting the 2008 economic crisis. He is currently on leave from the University of Chicago.
“This government did not deserve Dr Rajan. Nevertheless, India is the loser,” said P Chidambaram, the UPA finance minister instrumental in hiring Rajan.
In the letter, Rajan appreciated the work by RBI employees and said government reforms and the work by the bank and other regulators will result in greater job growth.
“I am an academic and I have always made it clear that my ultimate home is in the realm of ideas,” he wrote.
“I will still be working with you for the next couple of months, but let me thank all of you in the RBI family in advance for your dedicated work and unflinching support. It has been a fantastic journey together!”
(With agency input)