Govt not averse to giving Rajan a second term

There is also a lobby within the bureaucracy that wants to see Rajan’s influence curtailed

The government is not averse to giving Reserve Bank of India governor Raghuram Rajan a second term after his current tenure comes to an end in early-September, sources said.

However, the government has not taken a final call and is yet to inform Rajan. There are sections within the government who think he would do well to be more circumspect in his public utterances.

There is also a lobby within the bureaucracy that wants to see Rajan’s influence curtailed. But government sources say its top leadership, contrary to current perception, has a “good equation” with Rajan.

Rajan, who started his public life in India as the chief economic advisor from August 2012, succeeded Duvvuri Subbarao on September 4, 2013 to become the 23rd governor of RBI. There has been a lot of speculation on whether he will be given a second term or if there will be a new person at the helm at RBI.

“The Reserve Bank and the government are on the same page on a number of issues, including monetary policy, inflation targeting, growth aspirations, and fiscal consolidation,” said a senior government official.

“The finance minister met the fiscal deficit target of 3.5 per cent of GDP (gross domestic product) for 2015-16 and the governor responded with a rate cut in his next monetary policy meeting. This shows the level of understanding they share,” the person said.

Government sources also believe that the equation between the Rajan and the finance ministry has improved significantly since the current economic affairs secretary took charge of the department.

In the past several months, the RBI governor has spoken on varied issues such as the intolerance debate and has came under flak recently for his choice of simile while describing India’s growth when compared to other developing nations. The government’s top leadership thinks Rajan could do with commenting less on issues other than monetary policy and economy.

Rajan is seen to have broken the mould on what an Indian central bank chief can say in public. Traditionally, RBI governors, many of whom were retired bureaucrats, rarely ventured to comment on issues other than those that fell within their ambit. But the former chief economist at the International Monetary Fund has been an exception.

In November last year, Rajan said an atmosphere of intolerance and lack of healthy debate among different ideological strands affects the economic prospects of a country. This was said when there was a raging debate on intolerance after attacks on members of minority communities.

Then, speaking at the International Monetary Fund and World Bank spring meeting in mid-April, Rajan had said India’s growth in a situation of global slowdown was a bit-like a Hindi phrase, which when translated, means “In the land of the blind, the one-eyed man is king”.

His comments caused much offence among certain sections of Indian society. Commerce Minister Nirmala Sitharaman said Rajan’s choice of words could have been better. The governor had to clarify his remarks a few days later.

The appointment or reappointment of an RBI governor is at the sole discretion of the government and not through a committee. And if the past is a good indicator, the decision comes at the fag end of the tenure.

The Centre typically takes time to announce its decision and it generally comes around a month or so before the contract expires. In case of former governor D Subbarao, the government asked him about his willingness to continue in the first week of August 2011, whereas his term would have come to an end on September 4 that year.

Subbarao’s first appointment was also a bit dramatic. He was named RBI governor on September 2, 2008, just three days before his predecessor Y V Reddy was set to demit office. Reddy’s appointment as governor was also interesting.

He was RBI’s deputy governor for six years from September 14, 1996, till he resigned from his position on July 2002 to become India’s executive director at International Monetary Fund from August that year.

However, at the insistence of retiring RBI governor Bimal Jalan, Reddy was brought back to India and given a five-year term as governor from September 6, 2003. He was given a further extension, which he didn’t accept.

The Rajan story

Raghuram Rajan’s journey from IMF to RBI

2003 to 2006

Rajan served as chief economist and director of research at the International Monetary Fund

Aug 10, 2012

Appointed Chief Economic Advisor

Sep 4, 2013

Assumes charge as 23rd governor of the RBI

Photograph: PTI