Raghuram Rajan revives the debate over his exit

Replying to a question on the tenure of the RBI governor at the hearings of the standing committee on finance on Thursday, Rajan said the tenure of the Indian central bank governor is “short", citing the longer tenures offered to counterparts across the world, the people said.

“During the meeting, Raghuram Rajan was asked what his opinion was about the tenure of the RBI governor and he replied that it was short. Rajan also said that in the US, the tenure (of the head of the US Federal Reserve) was for four years while in some other countries it was five years. He said it is for the government to decide what should be the ideal tenure of RBI governor," said one of the people cited above, on condition of anonymity.

Rajan’s remark came a little under two weeks after he announced that he will be demitting office at the end of his three-year term in September and returning to academics.

RBI declined to comment on his remarks at Thursday’s hearings.

In June, in a letter to RBI staff that was put up on the central bank’s website, Rajan noted that a monetary policy committee that will set interest rates was yet to be formed and a bank clean-up was still under way.

“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 fuelled speculation that Rajan’s decision to quit may have had something to do with the government’s late defence of the governor against sustained attacks by the Bharatiya Janata Party’s Rajya Sabha MP Subramanian Swamy.

Swamy had written open letters to Prime Minister Narendra Modi demanding the sacking of Rajan, whom he accused of holding back economic growth by keeping interest rates high.

“The National Democratic Alliance (NDA) allowed a situation to deteriorate, forcing Raghuram Rajan to leave," said Abhay Kumar Dubey, a New Delhi-based political analyst associated with the Centre for Study of Developing Societies think tank.

“The RBI governor had no choice. Whatever Subramanian Swamy said against Rajan was the general sentiment in the government. There are ample indications that if the government had taken measures and spoken to Rajan, he would have stayed," he said.

Modi, in an interview to Times Now this week, strongly defended Rajan, but many felt it was a bit too late.

“I believe Raghuram Rajan’s patriotism is no less than any of ours. It will be doing injustice to him if one says that he will serve the country only if he is at a particular post. As much as I know Raghuram Rajan, whatever post he holds, wherever he is, he is someone who will continue to serve the country. He is someone who loves his country," Modi said.

Rajan also informed the parliamentary committee that the economy was doing well and performing much better than most countries in the world.

On being asked about the recent decision of the government on bank mergers, Rajan told parliamentarians that, ideally, the balance sheets of the banks should be cleaned up before mergers.

The governor, according to one of the three persons cited above, also commented on the preferential treatment accorded to some serial offenders on bad debt—something he has dwelled upon in the past as well.

In a New Year message to RBI employees, Rajan had said in a letter, “No one wants to go after the rich and well-connected wrongdoer, which means they get away with even more. If we are to have strong sustainable growth, this culture of impunity should stop".

Separately, in an interview to NDTV on Thursday, World Bank President Jim Yong Kim said, “What I have heard from talking to PM Modi and members of his team is that there is not going to be much of a change (after Rajan’s departure). They are going to continue to have an independent central bank governor, an independent central bank and the policies that have led to good outcomes so far economically will continue."