Rexit comes true, Raghuram Rajan hounded out

NEW DELHI: Raghuram Rajan stunned the world of finance on Saturday by declaring that he would step down as governor of the Reserve Bank of India on September 4 when his three-year term ends.  The sudden announcement means that Rajan will be the first governor of the central bank since 1992 not to secure an extension. After months of speculation and a rancorous campaign against him orchestrated by maverick lawmaker Subramanian Swamy which appeared to have the tacit support of an influential section within the Modi government, Rajan decided he had had enough of the invective and vile insinuations that questioned his motivations for refusing to cut interest rates and raised doubts about his sincerity and commitment to India.

Such was the intensity of the speculation that swirled around the fate of Rajan that it led to the coinage "Rexit", playing on the June 23 referendum that will decide whether Britain will exit or remain in the European Union. It was odd that Rajan - a former chief economist of the IMF who earned celebrity status after predicting the global economic collapse of 2008 - chose to make the announcement through a 900-word letter addressed to the employees of the central bank. Rajan said in his letter that he planned to return to academia in the US. He has been on leave from the University of Chicago. The RBI governor, who had gained widespread praise for persuading the Modi government to accept inflation as the nominal anchor for the conduct of monetary policy, said he had two unfinished jobs: the formation of a monetary policy committee that would take a call on interest rate cuts, and the clean-up of the banks' books that are weighed down by bad loans. "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," Rajan said in his letter. The letter seemed to suggest that Rajan had been looking forward to an extension but received no positive feelers from the government. The controversy over the subject of his reappointment had erupted a couple of months ago after Rajan told a financial daily that he had received no offer from the government on a tenure extension and would prefer to wait for one before deciding whether to accept it.

As Swamy ratcheted up his campaign against Rajan, there were reports that suggested the RBI governor had written to the government indicating that he would not be seeking an extension. Earlier this month, an amused Rajan had read out from a prepared statement when asked by reporters about his extension: "I am personally intrigued by all the letters I am supposed to have written." Finance minister Arun Jaitley - who has had enormous respect for Rajan despite their disagreements over the pace of interest rate cuts - said in a tweet: "The government appreciates the good work done by him and respects his decision. A decision on his successor would be announced shortly." Former finance minister P. Chidambaram said: "I am disappointed and profoundly saddened by the decision of Dr Raghuram Rajan to leave the RBI on completion of his term... but I hasten to add that I am not surprised at all." He added that the government had invited this development through a craftily planned campaign of insinuations, baseless allegations and puerile attacks on a distinguished academic and economist. "As I had said sometime ago, this government did not deserve Dr Rajan. Nevertheless, India is the loser." Several industrialists were unhappy to see Rajan go. HDFC chairman Deepak Parekh said: "It's a pity to lose him. I'm wondering what has precipitated this action by the governor. I am sure the government, at the right time, would have considered giving him another term as most governors have got." Infosys co-founder Narayana Murthy, who had recently pitched for a 10-year term for Rajan, said the RBI governor deserved to be treated with greater dignity. Strangely, leading chambers of commerce like the CII and Ficci refrained from commenting on the development. But Swamy - Rajan's bete noire - exulted even as he remained caustic: "R3 (Raghuram Rajan) has said he will go back to the US. Whatever fig leaf he wants for hiding the reality, we should not grudge it. Say Goodbye!" Reuters quoted a senior government official as saying that there were seven candidates on a long list to replace Rajan. The candidates include former Finance Commission chairman Vijay Kelkar, former RBI deputy governors Rakesh Mohan and Subir Gokarn, former chief economic adviser Ashok Lahiri, current RBI deputy governor Urjit Patel, State Bank of India chief Arundhati Bhattacharya and National Stock Exchange chairman Ashok Chawla. Two finance ministry officials, Shaktikanta Das and Arvind Subramanian, who market participants had previously speculated might be candidates, are not on the long list, the official said.