And so, Raghuram Rajan has signalled his exit from the RBI with the same dignity and grace with which he conducted himself throughout his three-year term as Governor.
There is no rancour or bitterness in the note that he sent to colleagues at the RBI; if anything it is a straight assessment of his term measured against the ambitious agenda that he had set for himself on Day One. If he was upset or unhappy with the mudslinging against him — and he had enough and justifiable reasons to be so — there is absolutely nothing in his note to give that away.
The most interesting line of the note though is this: “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, 2016. I will, of course, always be available to serve my country when needed.”
It betrays a sense of disappointment that he could not see through two important, ongoing initiatives to their logical conclusion — forming the Monetary Policy Committee and the Asset Quality Review of banks. However, the diplomatically couched words — “… on due reflection and after consultation with the government…” leaves no room for doubt whatsoever that Rajan either found no comfort in the highest levels of government — the Prime Minister, that is — or the latter failed to convince him to stay on.
To put things in perspective here, appointments and exits of RBI governors should normally not be cause for the attention that Rajan’s exit is now getting. There have been excellent governors in the past who guided monetary policy through equally turbulent times as now. The names of Y. V. Reddy (during the 2008 financial crisis), Bimal Jalan (during the East Asian financial crisis which coincided with an unstable political environment) and of course, S. Venkitaramanan (during the mother of all crises that the economy has faced), easily come to mind. And their retirements did not mean the end of the road for the RBI or the economy.
Yet, what is a matter of sadness and concern is the way Rajan’s exit was manoeuvred. The public campaign against him by Dr. Subramaniam Swamy, the gratuitous statements questioning Rajan’s integrity and most important of all, the silence of Prime Minister Modi in the face of this campaign raise doubts over whether there was a larger agenda at play here.
Modi’s silence can only mean two things neither of which add to his merit — that he agreed with Swamy or that he was unable to rein him in. If he was indeed unhappy with Rajan, a quiet word with the Governor would have been enough to settle the issue. As things stand, the silence from the government in the face of an attack on a constitutional authority who is constrained from responding can only give rise to damaging speculation.
That said, Rajan’s exit is not the unmitigated disaster for the economy as is being feared. The RBI is an excellent institution that houses some of the best professionals in this country in the field of economics and finance. It has always been respected by the markets and not just because of who’s heading it at a given time.
There will be some turbulence come Monday but that should be more because of the timing of Rajan’s announcement. The market is nervous as it is with Brexit round the corner and Rajan’s exit might shake it up a bit more. But things will eventually return to an even keel.
If the market does go into a downturn in the coming days, rest assured that it will not be because of Rajan’s exit. It will be because he’s replaced with someone of lesser standing. That’s a pitfall the government will struggle to avoid given Rajan’s standing and his larger-than-life image.
And that’s also the challenge that Rajan has thrown at the government. Raghuram Rajan has had the last laugh alright.