Did India’s dirty politics kill Raghuram Rajan’s appetite for a second term?

That’s all folks.
That’s all folks.
Image: Reuters/Danish Siddiqui
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The end of one speculation is the beginning of another.

Raghuram Rajan, India’s savvy central banker, announced today (June 18) that he won’t be seeking a second term at the helm of the Reserve Bank of India (RBI).

But the big question is why?

In a letter to his colleagues at the RBI, Rajan explained that he had reflected on his tenure and what he’d been able to deliver. In the end, though, he decided against staying on at India’s central bank.

“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,” Rajan said.

Of course, the Narendra Modi government and Rajan—who was appointed by Congress-led United Progressive Alliance in 2013—haven’t always been on the same page.

There have been intermittent tussles over interest rates, with the governor keenly focused on reining in inflation while the Modi government sought faster economic growth. Initially, the two also didn’t see eye-to-eye on the monetary policy committee, although the differences were later ironed out.

The straight-talking economist has occasionally rubbed the Modi government the wrong way for saying it like it is. In Feb. 2015, for instance, Rajan evoked Hitler when speaking of “strong governments.” In April this year, he described India as the one-eyed king in the land of the blind even as the government was talking up the economy’s performance.

That is perhaps why some have already suggested that Rajan’s exit is politically-driven, and perhaps even prompted by pressure from cronies.

In the past few weeks, there had been strident voices—particularly from within the ruling Bharatiya Janata Party (BJP)—seeking his removal. The most prominent among them was the party’s newly-anointed member of parliament in the Rajya Sabha, Subramanian Swamy.

“In my opinion, RBI governor is not appropriate for the country,” Swamy, who had repeatedly targeted Rajan lately, said last month. “He has hiked interest rates in the garb of controlling inflation that has damaged the country… (his actions) led to collapse of industry and rise of unemployment in the economy… The sooner he is sent back to Chicago, the better it would be.”

Rajan’s performance, though, has been anything but lacklustre.

Take, for instance, retail inflation. From around 9.52% in 2013, Rajan brought it down to 5.39% in April 2016. The governor also focused on cleaning up some Rs13 lakh crore worth of toxic loans from India’s bank. He’s set a March 2017 target for banks to create provisions that cover these bad loans.

Rajan also extensively worked towards financial inclusion. He gave payments bank licences to 11 companies last year. He also approved small finance bank licences, with the primary motive of reaching the unbanked population in the hinterlands.

So it wasn’t without reason that The Banker magazine named Rajan the Central Banker of the Year for 2016.

His record is also why many had called for a second term for Rajan, acknowledging his deft handling of the economy as well as his popular appeal—something that stemmed from his open and easy communication of ideas with the general public. There was even an online petition on, with nearly 60,000 backers, to retain Rajan.

In the end, however, Rajan—currently on leave from the University of Chicago’s Booth School of Business, where he’s a professor of finance—decided otherwise. This has saddened many who had come to admire the 23rd governor of the Reserve Bank of India.

“India was lucky to have had the services of an outstanding economist like Rajan as the Governor of RBI. His performance was acclaimed not just in India but throughout the world,” Infosys co-founder NR Narayana Murthy said in a statement. “Experts in economics agree on that.”