Dr. Rajan is the 23rd Governor of the RBI, and the past Saturday officially announced his decision to not seek a re-appointment and rather head to academia, from where he had originally come.
Let us consider a hypothetical story. Ramesh is the CFO of a listed company who’s stock and reputation were in the doldrums but over the last two years, the company has risen to became a favourite of global and domestic investors. Ramesh, an achiever in his own right and a widely respected person on the global circuit, regularly bemoans the hiring policies of his company at investor meetings and finance-related conferences. These comments cause panic and hear among the investors, after all these are coming from a person no less than the CFO. Invariably after every such comment, the company’s stock falls or ratings suffer. As the Chairman of the Board of Directors of the company, would you continue with Ramesh? Such a question must have been one of the many points that PM Modi must have had to ponder overtime the issue of extensions of the tenure of Raghuram Rajan (or, R3?) came up.
Just like Ramesh, Dr. Rajan has frequently overstepped the line and bitten the bail of answering questions to which he should have smiled and moved on. After all, he is responsible for the policy making at RBI, India’s central bank, and expert to perceive. “The Rising Intolerance”, of which there is no dearth in India.
Heads of central banks around the world are appointed and removed by the elected government. Since the government in a democracy is meant to directly represent the views of the country. It is only fair that the government’s nominee head the central bank. This is the case not only in India or other young democracies, but also in the U.S, the world’s oldest surviving democracy where appointments to the Fed are politically motivated and controlled. Finance of a country and her citizen are controlled by its monetary as well and budgetary policy, and it only makes sense that these two pull in the same direction. Of late there were murmurs of them being out of sync and questions were raised regarding the delay and quantum of reduction of rates.
The media worked itself, and many who follow the news on TV, into a frenzy, with some going on to predict the end of the Indian dream and an imminent crash of the market because of Dr. Rajan’s exit. Sensex put these rumours to reset with a 241 point (0.91%) rise on 20th June, the first day of trading after Dr. Rajan’s announcement. Fitch went on the say that “policies are more important than personalities”, and the market strongly seemed to subscribe to this thought.
No one in indispensable. Even the U.S. President’s terms is restricted to 8 years, with the assumption that someone better is round the corner. The country was made to accept Smt. Pratibha Patil as a replacement for Dr. Kalam, who, as president, did more for the country and the post in one term than others could do in four, but here we are already choosing Dr. Rajan over a yet-to-be-announced successor. India, and its media, would do well to wait for the announcement of the new governor’s name, and then see her/his performance before running to place Dr. Rajan on a pedestal. Of the 22 men to have occupied the governor’s seat, many did not stay to complete the term. One even left in 45 days! To say the decisions to ‘push-out’ Dr. Rajan is un-precedented is being generous with facts.