Union finance minister Arun Jaitley on Saturday said a successor to RBI governor Raghuram Rajan will be announced soon after the central bank chief announced he won’t seek a second term when his tenure ends on September 4.
The RBI chief’s announcement that he will return to academia in September might hurt investor confidence in the economy as India Inc was gunning for Rajan’s second stint for him on the back of his work in reining in inflation and stabilising the currency.
“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 letter.
“I will, of course, always be available to serve my country when needed.”
Hours later, 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.
The Government appreciates the good work done by him and respects his decision. A decision on his successor would be announced shortly.(2/2)— Arun Jaitley (@arunjaitley) June 18, 2016
The 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 with an eye on inflation.
Lower interest rates boost growth because of the rates at which loans are available to the industry are reduced.
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”.
The Congress rushed to blame the government for appearing to force Rajan out through a campaign of “insinuations, allegations and attacks”.
“I am disappointed and profoundly saddened by the decision of Dr Raghuram Rajan. This government did not deserve Dr Rajan. Nevertheless, India is the loser,” former finance minister and senior Congress leader P Chidambaram said.
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.
(with agency inputs)