Raghuram Rajan seems to have brought P Chidambaram and Yashwant Sinha on the same page. Both the current and former Finance Ministers feel that change of guard at the Centre should not affect Rajan’s tenure as RBI Governor.

“I do not think we should subject the post of RBI Governor to politics. There is no need to change the Governor with the formation of new Government,” he told Business Line .

Amidst speculations that Rajan may have to exit if there is a change in regime at the Centre, on May 5 Chidambaram had said that the central bank Governor was appointed based on his reputation and every Government must respect this appointment.

There have been number of instances when some BJP leaders have criticised Rajan for raising the policy rate to curb inflation. Sinha said that these opinions should not be interpreted as seeking removal of the Governor.

Three hikes

Rajan, who joined RBI on September 4, 2013, for a period of three years, has raised the rates three times.

There have been two instances when the RBI Governor was removed after formation of the new Government. The fist was in 1977, when, after the Janata Party Government under the leadership of VP Singh came into power, the then RBI Governor KR Puri had to go.

Second, when Chandrashekhar became the Prime Minister in 1990, the then RBI Governor RN Malhotra was replaced by S Venkitaramanan.

Interestingly, during the second instance Sinha was the Finance Minister, and he revealed that the reason for removal of Malhotra was purely ‘political.’

“I think it is the responsibility of the Government to ensure that inflation is brought down and thereby creates space for the RBI to start bringing down interest rates. It cannot be done in a vacuum; you cannot have high inflation and moderate interest rate.

“I am not faulting Rajan for the monetary policy he has adopted in the given situation,” he said.

Related Topics
comment COMMENT NOW