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Inflation warrior’s departure comes at a bad time: Industry

businesspaper Updated: Jun 20, 2016 05:57 IST
Ramsurya Mamidenna and Beena Parmar
Ramsurya Mamidenna and Beena Parmar

MUMBAI: Reserve Bank of India ( RBI) governor Raghuram Rajan’s decision to not seek a second term and return to academia has drawn mixed response from industrialists and market experts. While most welcomed his contribution in taming inflation and for initiating efforts to clean up banks saddled with bad loans, some raised concerns on the timing of his departure, which comes when the global economic environment is uncertain.

“Enough has been said on things he has done in the area of inflation, fiscal deficit control, current account and to punish people who were not paying back money,” said Harsh Mariwala, chairman, Marico. “He got a lot of flak for not reducing rates. But, I think that’s his call as an economist. It’s a trade-off between interest rates and inflation. I will give him the benefit of doubt as economy is a complex subject”

“When Raghuram Rajan became the RBI governor, he had a tough task at hand. The currency was falling, inflation was high and India was seeking growth,” said Rahul Sharma, co-founder of Micromax and founder of YU Televentures. “He has played like a cricketing legend, like an allrounder, facing the challenges head on, playing on the front foot to drive away some of the biggest troubles for the economy. I would call him the Tendulkar of RBI, the master that played well.”

Rajan, who was appointed as RBI governor in 2013, surprised the industry on Saturday when he aired his intention of not seeking a re-appointment. The central bank head had come in for an unprecedented criticism from sections of the ruling BJP, particularly from party MP Subramanyam Swamy, who infamously described him as “mentally not fully Indian.”

The personal attacks were strongly criticised. “It’s possible to both hold Raghuram Rajan in highest esteem, yet disagree with some of his decisions. But unfortunate, how this saga played out,” tweeted BJD MP Baijayant Panda.

Finance minister Arun Jaitley has said that the government respects Rajan’s decision, and the focus would now be on finding a suitable replacement. “We must acknowledge that governor Rajan substantially improved India’s international credibility. We mustn’t give the impression that there isn’t sufficient talent in the country to succeed him and sustain India’s credibility,” said Anand Mahindra, chairman, Mahindra & Mahindra.

The buzz around possible successors include a bank head and a top bureaucrat, apart from deputies in the RBI, although most of it is wild speculation. “The timing is not right. Many past RBI governors have had a second term… Hopefully the next governor will build on his work,” said Kiran Mazumdar Shaw, chairperson and MD of Biocon.

“Over the last three years, the RBI has played a major role in steering the Indian economy through a period of volatility across the world,” said Chanda Kochhar, MD and CEO, ICICI Bank. “India is the world’s fastest growing large economy with stable macroeconomic indicators. The country has a very strong economic policy framework and the government is focussed on its growth and reform agenda.”

The markets have been jittery since last week on fears of Britain exiting the EU. Since Rajan is also perceived to be a favourite of foreign investors with many openly expressing adverse impact on the currency and bond markets if he is not given a second term, it is expected that equity and currency markets will be volatile on Monday.

Rajan’s work on new bank licences and payments bank was also raised. Chandrashekhar Ghosh, CEO of Bandhan Bank, one of the two lenders to have been awarded a banking licence, said: “Rajan has brought so many banking reforms and asset quality measures during his tenure. It would be better if he continued to serve as the RBI governor.”

First Published: Jun 20, 2016 05:57 IST

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