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 after 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 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 Sept. 4, 2016,"
Rajan wrote.
"I
will, of course, always be available to serve my country when needed."
It will
be the first time since 1992 that an RBI governor has departed after a single
three-year term.
A
senior government official told Reuters there were seven candidates on an
initial long list to replace Rajan.
"REXIT"
While
there had been some speculation Rajan might not stay 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 when 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
more than two decades.
"The government
appreciates the good work done by him and respects his decision. A decision on
his successor would be announced shortly," 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, including 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 U.S. 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".
Another
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 then 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
previously told Reuters that Modi's administration would re-appoint the
governor, should he wish to stay on.
Many
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 then made law by the government last year.
LONG
LIST
Rajan's
departure was likely to roil markets on Monday, analysts said, at a time when
global factors such as Britain's referendum on European Union membership are
already weighing.
"It's
a volatile period and as an investor I feel this was unnecessary. His term was
ending in September anyway, they could have waited until then," Salman
Ahmed, chief investment strategist at Lombard Odier Asset Management in London,
said.
"What
Mr Rajan wanted was to build a stronger institution and that cannot be one
person, the market understands that. What's unnerving is the timing," he
said, adding he expected at least a 1.5-2.0 percent fall in the rupee INR=D2.
"My
recommendation to the government is to appoint a successor as soon as possible.
Mr Rajan brought a lot of credibility to that post and if we have a name with a
similar CV, that will go a long way to reassure markets."
In
a move to pre-empt concerns the government lacked a credible field of
replacements, the senior official said the candidates on the long list to
succeed Rajan included RBI Deputy Governor Urjit Patel and Arundhati
Bhattacharya, who is chair of State Bank of India (SBI.NS), the
country's largest 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
global financial bodies, the International Monetary Fund and World Bank.
The
official played down concerns that Indian markets might 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."
Representative
Image
Source:
Reuters
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