Rajan retires

Raghuram Rajan chose a quiet weekend, when the financial markets were shut and could not instantly react, to drop the bombshell that he would return to his old teaching job at the University of Chicago at the end of his three-year term in September instead of staying on as governor of the Reserve Bank for another stint. It sent shockwaves coursing through the financial and political capitals of India and, coming as it does just ahead of the Brexit vote, could trigger volatility in the stock, bond and currency markets on Monday .
There had been unprecedented speculation in the past couple of months over whether the Modi government would give him a second term; every RBI governor in the last quarter of a century since liberalisation has spent at least five years at Mumbai's Mint Road.
Rajan's “Message to RBI Staff “ announcing his departure, which was released to the media by the central bank a little before 5 pm on Saturday , appears to have taken even top tier ministers, bureaucrats and bank chiefs by surprise.
While only the 53-year-old Rajan, his confidants and a very tight circle within government can speak to the real reasons for his decision, indications are that he was open to serving as governor till at least 2018, but sought an early signal from the Prime Minister and finance minister as to whether they wanted to retain him. That assurance may not have materialised soon enough--a few weeks ago, the PM called it an “administrative issue...for September, not now“-so instead of hanging in limbo till the last minute, as bureaucrats often humiliatingly do, Rajan decided to exercise his option to return to academia--a few weeks after his family had moved back to the US. This, despite unconfirmed reports that the PM was favourably inclined towards him and that FM Arun Jaitley and he shared a good working relationship--notwithstanding the government's initial unhappiness about his reluctance to cut interest rates and kick start growth, and instead focus obsessively on inflation.
Rajan, who had written and spoken at length on the dangers of crony capitalism long before he came to RBI, earned himself quite a few critics when he declared war on bad loans, forcing banks to declare massive losses and turning the screws on business groups that had flourished for years by not repaying debts. Considerable significance is being read into his saying, “While I was open to seeing these developments (new monetary policy framework and cleaning up of bank balance sheets) through, on due reflection, and after consultation with the government, I want to share with you that I will be returning to academia...I will, of course, always be available to serve my country when needed.“ It seems to confirm the belief that he would have liked to complete what he saw as his unfinished agenda. The last bit about “being available to serve“ set off a different set of rumours --that he may at a later stage `come back' in a key economic position in the government.
In a tweet about a couple of hours after Rajan served notice, finance minister Arun Jaitley said, “The government appreciates the good work done by him and respects his decision.A decision on his successor would be announced shortly .“
The government's decision to break with tradition and task a selection committee to shortlist candidates for the top job at RBI-was seen in some quarters as a hint that Rajan's reappointment should not be taken for granted.
The flurry of conspiracy theories arise largely from the fact that never before has an Indian banker been the subject of such animated discussion both within and outside the country . Central banking, monetary policy and economics--all of this is supposed to be grey and boring. But Rajan took Mint Street to Main Street. It wasn't just India Inc, the banking industry and the national polity that was transfixed over Rajan's continuance, even the educated urban middle-class was. Chief economist at IMF ,a celebrated professor in the US who was rated in a poll of his peers as the world's most influential economist, chief economic advisor to the Manmohan Singh government, and the man who shot to global fame forecasting the sub-prime crisis.
His tall, lean frame supplemented his intellectual stature and led to epithets such as `rockstar governor' and `economic sex symbol'. He was also unlike most other governors before him -innovative, ready to disturb status quo, outspoken on socio-political subjects such as tolerance, and at times, at odds with the government--for instance, he wasn't as gung-ho on `Make In India' and as uncritical of country's status as the fastest growing economy in the world.