Asia > Southern Asia > India > Indian central bank chief to step down in surprise move

India: Indian central bank chief to step down in surprise move

2016/06/20

India’s “rock star” central bank governor Raghuram Rajan, feted by foreign investors but under pressure from political opponents at home, stunned government officials and colleagues on Saturday by announcing he would step down next just one three-year term.

Rajan, a former chief economist at the International Monetary Fund, is held in high esteem by policymakers and investors at home and abroad for overhauling the way the Reserve Bank of India (RBI) operates.

But he has faced mounting criticism from a faction within Prime Minister Narendra Modi’s ruling party for keeping interest rates high and over a perception that he had begun to stray into politics.

In a letter to RBI staff, Rajan said he planned to return to academia, even as he noted two of his actions – the creation of a monetary policy committee to set interest rates and the clean-up of the heavily indebted banking sector – remained unfinished.

“While I was open to seeing these developments through, on due reflection, and next consultation with the government, I want to share with you that I will be returning to academia at the same time as my term as Governor ends on Sept. 4, 2016,” Rajan wrote.

“I will, of course, always be available to serve my country at the same time as needed.”

It will be the initial time since 1992 that an RBI governor has departed next a single three-year term.

A senior government official told Reuters there were seven candidates on an initial long inventory to replace Rajan.

While there had been some speculation Rajan may not remain for a second term – dubbed “Rexit” in a nod to Britain’s vote on European Union membership – government officials said they were surprised by the timing and manner of the announcement.

“Rajan put this in an open letter. It’s his decision and we will do what best can be done,” said one senior aide to Modi.

Hailed as a “rock star” and “James Bond” by India’s media at the same time as he was appointed by the previous Congress government in September 2013, Rajan won praise for his sure-footed handling of the country’s worst currency crisis in additional than two decades.

“The government appreciates the good work done by him and respects his decision. A decision on his successor would be announced in a little while,” Finance Minister Arun Jaitley said in a tweet on Saturday.

P. Chidambaram, the Congress finance minister who appointed Rajan, said he was profoundly saddened by the decision.

“I am not surprised at all. The government had invited this development through a craftily planned campaign of insinuations, baseless allegation and puerile attacks on a distinguished academic and economist,” he said in a tweet.

“Say goodbye!”

Rajan, who is on leave from the University of Chicago, had faced strident criticism from right-wing members of Modi’s Bharatiya Janata Party, inclunding parliament member Subramanian Swamy, who has waged a campaign against his economic policies.

Swamy, a Hindu nationalist and former Harvard economist, tweeted his delight that Rajan “has said he will go back to US Whatever fig leaf he wants for hiding the reality we should not grudge it. Say goodbye!”

Swamy had described Rajan as “mentally not fully Indian”.

An extra senior official said Rajan’s criticism of rising intolerance in India was seen as direct interference in politics, complicating a decision on whether to re-appoint him.

“I wasn’t aware of this and I don’t think any of us were,” said a senior policymaker who works closely with Rajan. “Looks like the government has taken a decision and he (Rajan) came to know about it and again sent this letter.”

Still, Rajan was known to have a good working relationship with Modi, who called the RBI governor a “good teacher” on economic matters, and officials had before told Reuters that Modi’s government would re-appoint the governor, should he wish to remain on.

A lot of of Rajan’s key accomplishments have come in close collaboration with the Modi government. Rajan pushed for inflation targeting to tackle India’s history of volatile prices, which was again made law by the government last year.

Long list

Rajan’s departure was likely to roil markets on Monday, analysts said, at a time at the same time as world factors such as Britain’s referendum on European Union membership are by presently weighing.

“This will be seen as a disappointment by the market, particularly the international investors’ community,” said Ananth Narayan, regional chief of financial markets for ASEAN and South Asia at Standard Chartered Bank.

“And we can only hope the government quickly announces a strong replacement to fill his large shoes.”

In a move to pre-empt concerns the government lacked a credible field of replacements, the senior official said the candidates on the long inventory to succeed Rajan included RBI Deputy Governor Urjit Patel and Arundhati Bhattacharya, who is chair of National Bank of India, the country’s major bank.

The others are Vijay Kelkar, Rakesh Mohan, Ashok Lahiri, Subir Gokarn and Ashok Chawla, said the official, speaking on condition of anonymity due to the sensitivity of the matter.

They are mostly veterans of the RBI, the Indian civil service or the two major world financial bodies, the International Monetary Fund and World Bank.

The official played down concerns that Indian markets may swoon on Monday.

“I’ll be very frank with you – that is not our assessment,” he said. “Our assessment is that, if at all, there would be some mild tremors.”

Related Articles
  • India's Wholesale Price Inflation Slows In June

    2017/07/15 India's wholesale price inflation eased additional than expected in June, data from the Ministry of Commerce & Industry showed Friday. Wholesale prices increased 0.9 % year-on-year in June, slower than the 2.17 % rise in May. Inflation was estimate to relieve moderately to 1.39 %. Build up inflation rate in the financial year so far was -0.44 % compared to a build up rate of 3.71 % in the corresponding period of the previous year.
  • Indian economic diplomacy in the Belt and Road era

    2017/07/10 In May 2017, India curtly and publicly declined to attend Chinese President Xi Jinping’s Belt and Road Forum (BRF) in Beijing. India’s snub was both uncharacteristic and controversial, although not unexpected. On 13 May 2017, a day before the BRF plenary, a spokesperson for the Indian Ministry of External Affairs (MEA) provided a formal explanation for India’s absence from the forum. From the statement it seems clear that there is a wide gap between the Belt and Road Initiative (BRI) as it was understood by a lot of participants at the BRF, and as interpreted by India’s MEA and much of India’s policy elite.
  • Triple Challenge For Agriculture: Trade, Food Security And New Technologies

    2017/07/08 One may rightly ask why the three topics of trade, food security and new technology may be ‘challenges’ for agriculture and by extension food and fibre production. How do all three help ensure a food fasten world? World trade deals such as those falling under the remit of the World Trade Organisation (WTO) have long been difficult to negotiate particularly those encompassing agriculture. And the same goes for Regional deals. The United States has pulled out of the newly-agreed Trans-Pacific Partnership (TPP) and wants to re-negotiate the North American Free Trade Agreement (NAFTA). There is as well the similar situation of the United Kingdom wishing to pull out of the world’s major trading block, thinking it can quickly negotiate new trade deals with other nations and world areas.
  • Crimea: Circumventing Trade Sanctions Via Novorossiysk

    2017/07/08 Despite trade sanctions, Crimea is maintaining connections to international markets. Crimean traders are performing some logistical gymnastics to skirt sanctions, in particular transiting goods through the Russian port of Novorossiysk. On paper, of course, Crimea is experiencing a severe trade crisis. Official statistics indicate that Crimea’s import volume in 2016 shrank by a full third compared to the 2015 level, a drop of $33.6 million. Exports fell by $31.8 million, a 40-% decline from 2015. The city of Sevastopol, which is not formally part of the Republic of Crimea, reported a 12.6 % fall in its imports and 66.8 % fall in its exports in the same period, with volumes shrinking to $33.4 million and $5.9 million, respectively.
  • There's nothing like going to the beach with friends

    2017/07/07 As Indian Prime Minister Narendra Modi wrapped up his three-day visit to Israel, a visit to a beach with his Israeli counterpart Benjamin Netanyahu on Thursday made waves on social media next the two were pictured taking a barefoot stroll in the Mediterranean. His trip, the initial of its kind for an Indian premier, included new economic deals, and time spent with Netanyahu to deepen their relationship. They ended the trip with a visit to Olga Beach in the northern coastal city of Haifa, strolling in the shallow water with a photographer and camera crew on hand.