Modi faces calls to remove RBI chief Raghuram Rajan

Mr Rajan is credited with helping control inflation in India, stemming the free fall of the rupee and pushing for financial inclusion. A major bugbear for the BJP is that Mr Rajan  was appointed by the previous Congress government.
Mr Rajan is credited with helping control inflation in India, stemming the free fall of the rupee and pushing for financial inclusion. A major bugbear for the BJP is that Mr Rajan was appointed by the previous Congress government. PHOTO: AGENCE FRANCE-PRESSE

BJP steps up attacks on Raghuram Rajan as his term as central bank governor nears end

Reserve Bank of India (RBI) Governor Raghuram Rajan is known for speaking his mind, even courting controversy by calling India a "one-eyed king in the land of the blind" to describe its economy in a global context.

The former International Monetary Fund (IMF) economist - who has often spoken on matters unrelated to monetary policies - is credited with helping control inflation, stemming the free fall of the rupee and pushing for financial inclusion.

Yet as Mr Rajan, 53, comes to the end of his three-year term in September, there is intense speculation over whether Prime Minister Narendra Modi will extend his term.

At least one member of the ruling Bharatiya Janata Party (BJP) has launched a public attack, vocalising some of the criticism of Mr Rajan in certain sections of the party and government. 

Last month, BJP leader Subramanian Swamy, who was recently inducted into the Upper House of Parliament, shot off the second of two letters to Mr Modi seeking the RBI chief's removal, levelling six accusations, including trying to "wreck the Indian economy".  He also called the decision to hold interest rates "disastrous" and "anti national". In his first letter, he criticised the governor for not being "Indian enough".

But many, including foreign investors, believe the outspoken Mr Rajan brings credibility and international visibility to India.

An online petition seeking his continuation has garnered 50,000 signatures. The rupee even weakened by 0.3 per cent on June 1 following a report in an Indian newspaper quoting unnamed sources as saying he did not want an extension.

Mr Mohan Guruswamy of the Forum for Security Issues said: "He has international status. He has a broad understanding of the global situation and good understanding of the Indian situation. He is a man who is not afraid to speak his mind. He has dealt with banking regulation very well in India. Modi would have to find another candidate with similar qualification and respect."

Mr Rajan is a well-respected economist who was among the few who famously predicted the 2008 global economic crisis.  He was chief economist of the IMF from 2003 to 2006 and is currently on leave as a professor of finance at the Chicago University's Booth School of Business.

In 2013, the previous government brought him back to India to head the RBI at a time when inflation had hit double digits and growth was slowing. After taking over, he appointed a panel to review India's monetary policy framework. He has made policy reviews bi-monthly and pushed banks to be more transparent, including revealing the extent of the bad loan problem. His steps contributed to retail inflation falling from 9.84 per cent in 2013 to 5.39 per cent this year.

Still a major bugbear for the BJP is that Mr Rajan was appointed by the previous Congress government. Since coming to power in 2014, Mr Modi, who according to analysts has listened to Mr Rajan's counsel in the past, has replaced many Congress appointments, such as the finance secretary.

The government has not revealed its plans for the RBI chief yet. Mr Modi called it an "administrative subject", warning the media against speculation.

Finance Minister Arun Jaitley called the "RBI and its Governor an important institution in Indian economy" but has launched personal attacks against Mr Rajan.

"It is disgraceful that the head of a central bank should be coming under so much media glare and opinion," said Mr Madan Sabnavis, chief economist at CARE Ratings. "He (Swamy) can't possibly say he has destroyed the economy. You have told the RBI to do certain things (like curbing inflation) and can't blame it for doing it. He has been able to implement a lot of things on the agenda. But the counter view that the whole world comes to an end and currency market will collapse (if he doesn't get an extension) is an exaggeration. It has become a political issue because he is a Congress appointee. If he wasn't, it wouldn't have got so much attention."

A version of this article appeared in the print edition of The Straits Times on June 08, 2016, with the headline 'Modi faces calls to remove RBI chief'. Print Edition | Subscribe