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Why This Fuss Over RBI Governor Raghuram Rajan?

Sutanu Guru takes a close look at the controversies over the articulate and high profile RBI Governor Raghuram Rajan

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There is a famous poem that ends with the following words: if winter comes, can spring be far behind? Take a large dollop of poetic license and you could coin the following words: If Subramanian Swamy comes, can controversies be far behind? When the “controversial” and “maverick” Swamy was nominated as a Rajya Sabha MP by the Narendra Modi regime, fireworks were guaranteed. But most thought that the Swamy salvos would be by and large reserved for Sonia and Rahul Gandhi, apart from assorted Congress leaders like former finance and home minister P. Chidambaram. But of late, Swamy seems to be concentrating almost all his firepower on Raghuram Rajan, the Governor of Reserve Bank of India. The first tenure of Rajan comes to an end in September, 2016. But Swamy doesn't want to wait that long. He has demanded that Rajan must be sacked forthwith for various “crimes” of omission and commission.

It is not just Swamy who is agitated and excited about Rajan. Large sections of media-both mainstream and social- seem to have devoted unusual attention and space to the fortunes and fate of Rajan. In fact, well known columnist Shobha De set the tone by pronouncing him “sexy” after Rajan took over as the RBI governor. Since that column around September, 2013, Rajan has managed to be in the news. There are two reasons for this. The first has to do with his primary job of implementing monetary policy in India and taking a final call on interest rates. He has been widely perceived to be a “hawk” when it comes to interest rates. Many economists and analysts claim that his stubborn refusal to cut interest rates at a faster pace is a key reason for economic growth not picking up in the country. That debate revolves around ivory towers, though it has a serious impact on the Indian economy.

The second reason is the rise of Narendra Modi. Many Modi fans believed that his regime will sweep away all signs of the previous UPA regime. Since Raghuram Rajan was “handpicked” by finance minister P. Chidambaram, he figured quite high on the hit list. The later half of 2014 and a lot of 2015 was full of “stories” on now current finance minister Arun Jaitley and disagreed and differed and how there was a trust deficit between them. But much to the chagrin of his fans, Modi has opted for stability and continuity. The fact is that the RBI governor and the finance ministry have often disagreed. Such disagreements existed even in the 1980s when Dr. Manmohan Singh was the RBI governor and Pranab Mukherjee was the finance minister. The other fact is that most RBI governors have served reasonably long and stable tenures. Rajan’s predecessor Dr D. Subbarao served for five years between 2008 and 2013. Before that Dr. Y. V Reddy served for five years between 2003 and 2008. Before that Bimal Jalan served for six years and Dr. C. Rangarajan for five years. So Modi has simply persevered with tradition.

Another grouse against Rajan is that while he might be a brilliant economist, he doesn't understand the Indian economy well since he has worked most of his adult life in the United States. But then, two more “American” economists Arvind Subramanian and Arvind Panagariya are key advisors to the Modi regime. You hardly hear any complaints about them not understanding the Indian economy. No matter what the truth, the Rajan issue has become political. And Modi faces a peculiar dilemma. If he does give a second term to Rajan, many of his fans and volatile ‘supporters” like Swamy could feel betrayed. (Do remember how another Modi supporter Ram Jethmalani felt betrayed over the black money issue in 2014 and is now a vocal critic). On the other hand, if Rajan doesn't get a second term, Modi critics will cite this as yet another instance of his regime silences and sidelines “independent” voices.

Either ways, expect even more fireworks over Raghuram Rajan very soon!