February 22, 2020
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Fit For A Fresh Start

Never before has a kerfuffle been raised over a central banker. What makes Rajan different?

Fit For A Fresh Start
Sretching Out
Rajan taking part in a Mumbai marathon
Photograph by Hindustan Times
Fit For A Fresh Start

Who’s Batting For Raghu And Who’s Not

  • Narendra Modi
    PM has not openly spoken about Rajan, but after the initial cold vibes, signals suggest a certain comfort level with the top banker
  • Arun Jaitley
    Has sparred with Rajan on interest rates, and talks of a “mature relationship” but repeated speculation about Rajan’s future indicates discord
    Sections do not like Rajan’s political statements, but there is clarity that perception management about the economy rests with Rajan—not Jaitley
  • Subramanian Swamy
    Has made no bones about wanting Jaitley’s job, and is leading an RSS drive to remove Rajan on the grounds that he has stymied economic growth.
  • India Inc
    Big guns like Adi Godrej and Uday Kotak have come out in support of Rajan, an indication of his global heft, but it’s no secret over-leveraged firms have been unhappy with his policies.
  • Public opinion
    90 per cent of top 43 CEOs polled by Economic Times want Rajan to get a second  term. A change.org petition has got over 50,000 signatures in his support.


A little after midnight in Bangalore a few days ago, something magical happened to Rajesh Palaria. The 33-year-old business analyst was surfing the news, dominated by BJP MP Subramanian Swamy’s letter to Prime Minister Narendra Modi, seeking the removal of Reserve Bank of India (RBI) governor Raghuram Rajan. A curious Palaria decided to research Rajan’s credentials. “The more I read about Rajan, I realised that he had only helped the economy flourish,” he told Outlook. A few hours later, Palaria decided to act. He took to the most accessible platform—change.org—to file a petition that has since gone viral, with 50,000 or so signatures.

Palaria says this is the first petition he has floated—and he did it to express an individual opinion and not to forward a political ideology of any kind. “I feel Rajan is a very apolitical man. He has never shown any favouritism to a political party. Dragging a person like that into a political controversy entirely run by a populist agenda is completely wrong,” he says. Palaria has been receiving threats on Facebook and Twitter, and feels that the kind of fanaticism engulfing the country right now makes it easier for him to be targeted by bullies. The incident with Rajan, according to him, is simply a reflection of what is happening in the rest of the country.

RBI governors may lord over all those boring bankers (there are notable exceptions, of course, in these scary post-2008 times) and live in a palatial house in south Mumbai, but barring their obligatory signature on rupee notes, no one really gives them much importance. Sure, the business press goes into paroxysms whenever there’s a regular monetary policy statement but, by and large, they have been below-the-radar suits. In contrast, relatively young at 53, Rajan has been the talk of town for over two years now. He is seen as the global face of the Indian economy.

Many say Rajan has done no wrong in speaking up on tolerance and dissent.

After Swamy’s attack, bankers and doyens of India Inc have taken pains to end­orse Rajan. But Palaria makes it special, for it shows that many young people feel Rajan (who completes a three-year term in September and is due for a two-year extension) stands for something, and rep­resents the best of the Indian economy.

What makes this a contest is that Swamy seems to have the backing of some powers. “Somewhere—I won’t say where—I got an indication that if you want to stop him, this is the time,” he told Bloomberg. His basic argument against Rajan (and this is a school of thought backed by some economists) is that by solely targeting inflation, Rajan has strangled the growth of the economy. Higher interest rates have hurt the corporate world, fuelling and accentuating high debts.

On Board

Jaitley with Rajan

Photograph by Tribhuvan Tiwari

Many theories are floating on the genesis of the present discourse on Rajan, some triggered in part by the RBI governor’s penchant for speaking up on issues like tolerance and the desirability of allowing space for divergent views. These are issues RBI heads—in fact even central bank governors globally—tend to stay clear of, leaving them to political and civil society leaders. But independent observers agree that, while unusual, Rajan has done no wrong by putting forth his views on issues that affect the country, polity and society at large. The other tack—that mentally Rajan is not “fully Indian”, as he holds a Green Card—has cut no ice.

“We are lucky to have Rajan as RBI governor. The world is far too complicated now for non-technical people to run monetary policy.”
Chetan Ghate, Prof, Indian Statistical Institute

The RBI has not commented on the flurry of headlines coming out daily. A couple of top managers Outlook spoke to did convey that the senior management of the bank was “completely behind Rajan” and how this was as an “unfortunate political attack”. The RBI is by nat­ure an apolitical body, as it ought to be. Earlier gov­­er­nors—even rec­ent ones like D. Subbarao and Y.V. Reddy—were part of the government before heading RBI. But they too grew into the job, and were reg­arded as independent—as central bankers generally are.

What is muddying the waters is the fact that the government has refused to comment, putting off to August the decision on Rajan’s extension. While this is how governments are known to react and ope­rate, the absence of a clear signal is not helping matters. It is known that Union finance minister Arun Jaitley—under some amount of pressure for his handling of the crucial finance portfolio—has had an edgy relationship with Rajan. Finance ministers and central bankers are not expected to see eye-to-eye, but clearly all is not well behind this “mature professional relationship” that Jaitley and Rajan share. His relationship with the government is also tempered by his public statements—even on the economy. Recently, Rajan had reacted to the des­cription of India as the “one bright spot” in the world economy by invoking the saying that in the land of the blind, the one-eyed man is king and that this was no time to feel smug since we seemed to be  doing well only because other countries were faring badly. It evoked a strong res­ponse from Union MoS for commerce Nirmala Sitharaman, who said that if he’d used better words, his message would have gone down better. She also followed up with the Swamy line of attack: high interest rates were binding India down.

Even before coming to power, the NDA government seemed less than keen on having Rajan stay on as RBI governor. Rumour mills were churning as early as April 2014, almost a month before Modi took over as prime minister. And alt­hough then BJP treasurer Piyush Goyal said that Rajan’s job was under no threat under the new government, news reports and industry gossip ensured that Rajan was constrained to issue a statement that the government was welcome to fire him. Since then, Jaitley and Rajan locked horns on several occasions over interest rate cuts, but despite the governments push to cut rates, Rajan held them.

The prime minister seems to have grown to be comfortable with Rajan over time.

The air was so fractious that a day before the February 2015 Budget, columnist Swapan Dasgupta, who is close to Jaitley and currently a Rajya Sabha member, tweeted: “How will RBI react? Politically or professionally? #Budget2015”. Remember, Jaitley was moved enough to react to Rajan’s criticism of ‘Make in India’ a few months earlier. The FM said it wasn’t relevant whether ‘Make in India’ was made for consumers within India or outside. The governor’s reputation for saying like it is hasn’t yet been digested by the Modi government. As a senior economist and head of a leading think tank put it, “In these times of 19th century servitude, Rajan sounds outspoken. He has been a proper, professional governor and has never said anything negative about India. He is where this country has to go not where the IAS lobby wanted it to go.”

Indeed, the relationship between the BJP and Rajan had a rocky beginning ever since the latter took office as governor. The report published by a panel headed by him recommending a new index of development ranked Gujarat as one of the “lesser developed” states in the country. Modi, whose main agenda for election ran on the “Gujarat development model”, was clearly upset by the findings.

With The Captains

Rajan with industrialists at a seminar in Delhi

Photograph by Jitender Gupta

In fact, Jaitley, and even Modi, have been known to be occasionally generous in their public comments on Rajan. Last year, at a public event, Modi had acknowledged ‘similarity in thinking on both the sides’ on economic matters and praised Rajan for being “perfect” in explaining to him complex economic issues and implications of RBI’s policies in “just three-four slides”. The credit must go to Rajan being a good teacher and a mentor, as many of his students including at the University of Chicago and the Indian School of Business would vouch. As most of the ‘outspoken’ comments Rajan is criticised for have been made during lectures to mostly student community, it should be understandable.

“Rajan’s been a huge mistake, he’s been a disaster. But 95 per cent of the harm he could do, he’s already done. So give him another term.”
Madhav Nalapat, Manipal University

Even as the campaign for and against Rajan’s extension gathers momentum, behind-the-scenes consultations have been on for last few months on the weighty issue of whether Rajan should be given an extension of another two years. The argument for Rajan is that he has to complete the new framework of banking reforms he has helped usher in. There’s lot at stake—the government’s key strategy is to have better targeted inclusive growth. The success of this delivery rem­ains with the banking system, as on it rests the onus of ensuring that the subsidies and other welfare scheme deliver benefits without leakages.

Sources aware of the consultation process say Rajan stands tall among the names under review given the tasks he has accomplished. However, there are some within the expert group who support the idea of having a banker take forward the monetary reforms process. Till receiving an extension as SEBI chairman last year, U.K. Sinha was among potentials considered to be in the race. Other names in the reckoning include RBI deputy governor Urjit Patel, chief economic advisor of finance ministry Arvind Subramanian, economic affairs secretary Shaktikanta Das and State Bank of India head Arundhati Bhattacharya.

Patel is said to score over Subramanian, not just in terms of his closeness to the Modi. It is learnt that Rajan was against giving an extension to Patel when his term got over recently, but the government had its way. That said, Patel is not sufficiently connected to win the coveted post of the central bank chief. Says former E&Y man Ashvin Parekh: “The GoI could have all­owed the extension, now they cannot help it. It has become a story. But something deep down tells me, sense and sensibility will prevail over pride and prejudice.”

“How many people can directly phone Janet L. Yellen?” asks analyst Mohit Satyanand.

Swamy may well have been propped by the RSS and some in the BJP to test the pulse of the people on the lines of earlier exercises (like banking transaction fee or royalty for GM, for instance). So whether Swamy is “being paid to be an irritant”, as one economist put it, or he is expressing his own views, many see it as simple political ambition. Of course, Swamy has his supporters. Madhav Nalapat, director, department of geopolitics, Manipal University, is scathing: “Given Rajan’s rock star status, my view is that the man has already done all the damage he can to the economy. So I would say, give him the advantage of this rock star status and give him another term.” In Nalapat’s view, no income is worse than no inflation. “The priority has got to be creation of jobs, even if in the process you risk slightly higher inflation,” he argues. Another line of attack is that Rajan doesn’t understand India’s problems. Says M.R. Venkatesh, CA and political analyst: “Yes, it is a great achievement of Rajan’s that he, being an Indian, has gone abroad and succeeded. But he now faces the problem that all these chaps from abroad do when they return to India—the nuances of India are lost on them. We need a home-grown governor of the RBI who understands that inf­lation and growth are not always mutually contradictory. We need someone who understands the granular portion of how NPAs are arrived at in India.”

Experts supporting Rajan maintain that while it is fine to hold opposing views, it is wrong to call what the central bank governor has been doing  wrong. For instance, the RBI decision to shift from the wholesale price index (WPI) to the newly formulated consumer price index (CPI) for flexible inflation targeting, because the earlier system was showing a major disconnect. While the inf­lation rate is considerably under check compared to last several years’ levels, the role played by low commodity prices, inc­luding crude oil, for nearly two years, cannot be discounted. The switch to a flexible inflation targeting has also helped to bring out a clearer picture of the inflationary pressures on the common man.

Also, as the Modi government knows only too well, Rajan is recognised globally as the face of the Indian economy. As a top finance source close to the government agrees, it is important for the Modi government to recognise that in the outside world, the RBI and Raghuram Rajan are very critical pieces. “The level of global network he has, I don’t think any Indian can do that,” argues market analyst Mohit Satyanand. “How many people can pick up the phone and talk to Janet L. Yellen (chair of the board of the Federal Reserve System).” In an interconnected world, Rajan’s level of expertise—it is now the stuff of folklore that he foretold the great financial crash of 2008—will be crucial.

“I know of so very many people who made a similar analysis of the financial crash of 2008, well in advance of Rajan.”
M.R. Venkatesh, CA, analyst

Dismissing the criticism of Rajan as “unhealthy and basically lazy talk”, Chetan Ghate, professor, economics and planning unit of the Indian Statistical Institute, states, “We are very lucky to have a governor of his calibre. India is a difficult place to be a central banker. Monetary policy is an important facet of policymaking and it is best left to a technical economist. By hiring Rajan we have put in place a technical person.” Explaining his support for the RBI governor, Ghate cites the fact that Rajan has taken a call on inflation targeting. As RBI is also a potential bank regulator, he is addressing the NPAs issue, which has become overblown. For greater financial inclusion, he has set up a variety of banks—more banks have come up than after the 1991 reforms.

Indeed, with his focus on fiscal discipline and macro-economic stability, Rajan makes a lot of sense. Whether at the behest of someone or not, Swamy’s guerilla tactics have not convinced most people.

When asked recently about his plans, Rajan said, “We have accomplished a lot. There is always more to do.” In India and globally, everyone is waiting for Modi to speak up and choose the best man.


Rockstar Rajan What The RBI Governor Has Done Right

  • Inflation targeting
    A steadfast focus on inflation has reined it to single digits after many years, but high interest rates have been questioned by growth wallahs
  • Rupee check
    Has stabilsed the rupee at a time of global upheaval and uncertainty, and has helped control the flight of capital
  • Bank loans
    Banks have been forced to shed their rel­uctance to rep­ort bad loans or stressed assets worth thousands of crores
  • Credit rating
    Tightened credit norms, fuelling anger among poor at being hounded for small amounts while the big fish get benefit of debt restructuring
  • Home loans
    Initiated a long-pending reform to intr­oduce home loan base rate, which will help consumers get cheaper loans
  • Righting RBI
    Has initiated a rule-based monetary policy committee to decide interest rates, ceding some of the RBI’s powers
  • Sab ka haath
    Bringing millions into the formal banking sector through Jan Dhan, but it is still too early to measure outcomes
  • Payment banks
    Tried to up bank reach by granting payment banking licenses, but outcome remains to be seen with three allottees exiting


Moral Compass Rajan Has Used His Megaphone, Often On Topics Un  Related To His Brief, Even At The Risk Of Displeasing His ‘Masters’

Economic Growth

  • April 2015 “I think we have still to get to a place where we feel satisfied. We have this saying—‘In the land of the blind, the one-eyed man is king’. We are a little bit that way. My intent is to signal that our outperformance was accentuated bec­ause world growth was weak, but we in India were still hungry for more growth.”

Crony capitalism

  • August 2014 “By killing transparency and competition, crony capitalism is harmful to free enterprise, opportunity, and economic growth. And by substituting special interests for the public interest, it is harmful to democratic expression. If there is some truth to these perceptions of crony capitalism, a natural question is, why people tolerate it? Why do they vote for the venal politicians who perpetuate it?”


  • Oct 2015 “Actions that physically harm anyone, or show verbal contempt for a particular group so that they damage the group’s participation in the marketplace for ideas, should certainly not be allowed.... Excessive political correctness stifles progress as much as excessive license and disrespect. Tolerance and mutual respect are necessary to improve the environment for ideas.”


  • Nov 2015 “Let the ideas fight each other but let’s not prevent each other from saying what we think. India’s democracy is its greatest strength...”

Election spending

  • April 2016 “Around election time, cash with the public does normally increase... You can guess as to reasons why, we can also guess. However, cash in people’s hands is up by more than Rs 60,000 crore at present, which is not normal. You see some (spike) not just in the state going to elections, but also in the neighbouring states.”


  • Feb 5, 2016 “MNCs complain all the time about excessive taxation. But it is also true that MNCs across the world tend to find tax avoidance and sometimes tax evasion as appropriate techniques. Some corporations find that all their intellectual property is manufactured in Cayman Islands. I haven’t seen a lot of smart scientists sitting in Cayman Islands.”

Inspector raj

  • May 2016 “India has done away with the licence raj, but inspector raj continues to some extent. Regulations should be for betterment of the industry and not to discourage entrepreneurs. There should be a system of self-certification for the industries with some checks on the part of the authorities to prevent any misuse.”


  • December 2014 “An export-led growth strategy will not pay for India as it did for Asian economies, including China, due to the tepid global economic recovery, especially in the industrial countries. Other emerging markets certainly could absorb more, and a regional focus for exports will pay off. But the world as a whole is unlikely to be able to accommodate another export-led China.”

Corporate defaulters

  • Nov 2014 “We need a change in mindset where the wilful and non-cooperative defaulter is not lionised as a captain of industry, but justly chastised as a freeloader on the hardworking people of this country.”

Narendra Modi

  • September 2015 “He is a very articulate spokesman for India. What we need to do is back up his visits with action on the ground which reinforces the good impression that is created.”

Strong governments

  • February 2015 “Strong governments may not, however, move in the right direction. Hitler provided Germany with extremely effective administration—the trains ran on time, as did the trains during our own Emergency in 1975-77….The rule of law is needed to prevent the tyranny of the majority that can arise in a democracy, as well as to ensure that basic rules of the game are preserved over time so that the environment is predictable, no matter which government comes to power.”

Relationship with GOI

  • May 2014 “I determine the monitory policy. The government can fire me, but it doesn’t set the monetary policy. So, in that sense, I’m independent. Well, I’m happy to talk to you about the government. I am happy to listen to the government but ultimately the interest rate that is set is set by me.”


  • August 2014 “I don’t think it’s good for the RBI to see everything in the same way the government does. We are keepers of stability, and therefore the government actually relies on us to stop them sometimes.”

Compiled by Arushi Bedi


The contenders Those in the running if a second term is nixed

Arvind Subramanian, CEA, Finance Ministry
The chief economic advisor’s name routinely pops up as Raghuram Rajan’s replacement (much like NITI Aayog’s Arvind Panagariya); thought to be competent but is not seen as a financial markets man. Plus, lacks political backing.

Urjit Patel, Deputy governor, RBI
Economist, consultant and banker, Patel is the architect of the switch to a flexible inflation targeting framework. Said to be close to Modi, but those in the know say not close enough to be an automatic choice.

Shaktikanta Das, Secretary, economic affairs
The highly qualified Das leads among bureaucrats for the job, but the thinking seems to have moved against finance secretaries turning RBI governors, given testy relations in the past. Perceived proximity to Jaitley too may go against him.

Arundhati Bhattacharya, Chairperson, SBI
Head of India’s largest public sector bank, she may not have been able to solve all the problems dogging SBI, but is expec­ted to bring better understanding of non-performing assets (NPAs) and outreach issues.

By Lola Nayar with Pragya Singh and Arushi Bedi

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