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Raghuram Rajan’s three years as RBI governor

20 June, 2016

After much speculation and following several controversies around  him, Reserve Bank of India (RBI) governor Raghuram Rajan, on Saturday, announced that he will  not seek a second term as the head of the central bank after his current term ends on 4 September 2016. Rajan is likely to go back to his teaching job at the University of Chicago Booth School of Business.

Rajan took over RBI’s reins at a very challenging time for Indian economy. His decision to exit as the central bank governor, too, comes at a time when the economy is facing serious issues.

Here is a quick recap of his accomplishments and the controversies he faced during his tenure.

What he accomplished at the RBI

In his letterto the RBI staff, Rajan cited several achievements during his tenure. Some of these include:

  1. Seeing the Indian economy transition from the ‘Fragile Five’ to one of the fastest growing large economies
  2. Laying the foundation for a new monetary framework focussed on curbing inflation
  3. Reducing inflation to under 5% and beefing up foreign exchange reserves to a record high of over $363 billion
  4. Stabilising the rupee by more than 10% from Rs. 68.80 levels around August 2013.
  5. Some of the above factors helped bring the repo rate to five year lows.

His share of controversies

  1. In December 2014, he was openly critical of Modi’s so-called ‘Make in India’ initiative, saying that an import substitution strategy or an incentive driven export led growth mechanism will not work for India.
  2. In June 2014, Rajan, in a strongly worded remark, had trashed the recommendation by the Financial Sector Legislative Reforms Commission (FSLRC), to set up a uniform regulator, calling it “somewhat schizophrenic.”
  3. In February 2015, Rajan spoke about excesses by strong regimes, leading to an ineffective government. “However, necessary government function is sometimes hard to distinguish from excess. We will have to strengthen government (and regulatory) capability resisting the temptation to implant layers and layers of checks and balances even before capacity has taken root.” Rajan had said.
  4. In November last year, said that India’s future economic prospects depend on how intellectually free its society is. “India’s tradition of debate and an open spirit of inquiry is critical for its economic progress,” he said while addressing students at the Indian Institute of Technology (IIT), Delhi, his alma mater.
  5. In January 2016, when Rajan publicly chastised loan defaulters for public display of wealth, both chief economic advisor Arvind Subramanian and NITI Aayog member Bibek Debroy openly differed with him on the issue.

Who will succeed Rajan at the RBI?

Even as the suddenness of Rajan’s exit is likely to cause volatility in the markets and could cause the rupee to drop significantly on Monday, finance minister Arun Jaitley said in a Facebook post that the government would soon decide on Rajan’s successor. According to several news reports, the following are in the reckoning for the coveted position, although the government could constitute a search panel for choosing a successor:

  1. Urjit Patel, Deputy Governor, RBI
  2. Arundhati Bhattacharya, chairperson, State Bank of India
  3. Arvind Subramanian, Chief Economic Advisor
  4. Kaushik Basu, Chief Economist, World Bank
  5. Shaktikanta Das, Revenue Secretary
  6. U K Sinha, chairman, Securities and Exchange Board of India
  7. Parthasarathi Shome, former advisor to the finance minister
  8. Vinod Rai, former Comptroller and Auditor General
  9. K V Kamath, president, BRICS Bank

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Raghuram Rajan’s three years as RBI governor

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