“He is rightly deemed as one of the very best central bank governors in
the world”, say El – Erian, Allianz SE’s Chief economic advisor. Many bigwigs
are backing a second term for our RBI governor. And why is this discussion in
the offing? Raghuram Rajan’s tenure as RBI governor is up for renewal (or not),
in September 2016. An RBI governor’s tenure is for about 3 years. Discussions
are abuzz all around in India and abroad about the possibility of his
extension. Hardly anyone is interested in whether the governor will cut rates
or not, they are keen to know if he plans to stay put or move on.
Why is a central bank governor so important
to any economy?
Well, it’s because he is just that, the governor. He is responsible for
the country’s monetary policy. He is responsible for managing the liquidity in
the country, which is so vital to the GDP growth of the economy.
According to an article in The Economic Times, dated 6th
June, this is probably the first time since liberalization of the economy began
in 1991 that the prospects of the financial markets and industry have become so
inextricably linked with the office of the RBI governor, or rather, who’s in
it.
History of RBI guvs in India
The Governor of the Reserve Bank of India (RBI) is the chief executive of
India's central bank and
the ex-officio chairperson of its Central Board of
Directors. Indian Rupee currency
notes, issued by the RBI, bear the governor's signature. Since its
establishment in 1935 by the British colonial government,
the RBI has been headed by 23 governors.
The first governor was a
Britisher, Sir Osborne Smith, who was the governor for 2 years and 90 days. The
first Indian to hold this post was CD Deshmukh who held the post from 11th
June 1943 till 30th June 1949. Dr. Manmohan Singh was the 15th
RBI governor and he held his position for 2 years & 120 days.
Often the ruling political
party wants to bring in their favoured RBI governor, but there has been a
different trend since YV Reddy. He was appointed the governor while NDA was in
power & continued to be so in the subsequent UPA government in 2004.
Impact
of Rajan’s exit
There’s speculation that
Raghuram Rajan may want to return to academics post September 2016. So what
would be adversely affected with him not getting a second term? So far as monetary
policy is concerned, it is unlikely to be affected by the ongoing controversy,
especially the one created by the loud-mouthed BJP politician, Subramaniam
Swamy, who has been demanding his exit. India’s economy is growing at an
impressive rate of 7.9% and that is a story in itself.
Raghuram Rajan unfortunately
had been elevated to a superstar status by media. He’s had his successes and
his failures, all which have been covered elaborately by all sections of media.
His biggest success has been on the inflation front, contributed extensively by
the falling oil prices. His crackdown on large corporate defaulters have won
him kudos and made him the Indian public’s hero. However, he has often spoken
out more than his predecessors which hasn’t really gone down well with the
ruling party.
Dr. Manmohan Singh has often
described governorship as the “loneliest job in India”. Let’s see if it’s vox populi (voice of the public) or a
body of work that determines the future of our current governor.
Ms. Monica Mor
Sr. Faculty, INLEAD
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