Raghuram Rajan letter bomb: Subramanian Swamy triumphs; ‘loss is India’s’ says Inc

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New Delhi | Updated: June 19, 2016 7:54:39 AM

BJP MP Subramanian Swamy’s vicious campaign against Raghuram Rajan, governor, Reserve Bank of India (RBI), found its mark, with Rajansaying on Saturday he would be returning to academia once his term ends on September 4 this year.

rbi policy, rbi policy 2016, personal loan, home loan, car loan, personal loan interest, home loan interest rate, car loan interest rate, interest rate 2016, business newsRaghuram Rajan’s tenure at the RBI has seen the introduction of differential banking; while two universal banks have been launched, licences have been given for 10 small finance banks and 11 payments banks. (Reuters)

BJP MP Subramanian Swamy’s vicious campaign against Raghuram Rajan, governor, Reserve Bank of India (RBI), found its mark, with Rajansaying on Saturday he would be returning to academia once his term ends on September 4 this year.

In a letter to his colleagues at the central bank, Rajan wrote: “While I was open to seeing these developments (asset quality review and monetary policy committee) 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.” He added, “I will, of course, always be available to serve my country when needed.”

The author of Fault Lines, Rajan’s remarkable prescience on the sub-prime crisis in the US and the subsequent global financial meltdown went unheeded by policy makers in that country. The academic from Booth, Chicago, has, however, found support not just from his colleagues like Luigi Zingeles, but also from financial market experts like El Erian. Liberal newspapers such as The Economist have also appreciated his ideas and efforts.

Rajan’s handling of the currency crisis in the country soon after he assumed office in September 2013 — the rupee had depreciated to its all-time low of 68.85 against the dollar — was exemplary. Not only has the rupee been among the best-performing currencies under his watch, the country’s forex reserves have scaled an all-time high to $363 billion.

As RBI governor, Rajan has been instrumental in cleaning up the country’s banking system, asserting that balance sheets of lenders must reflect the true value of the assets. He has also put in place several schemes to help banks recover dues from lenders—the strategic debt restructuring (SDR), for instance.

The most outspoken and candid, perhaps, of all central bank governors, Rajan was the first to openly label promoters in India as ‘freeloaders’. In a letter to his colleagues at the central bank earlier this year, Rajan asked his colleagues to ensure that the central bank is not seen as a mere ‘paper tiger’ and “even rich and powerful wrong-doers are not spared”.

The governor also wondered whether there was a need to be “more intolerant of sloppy practices at regulated entities, so that these do not result in massive scams years later?”

Raghuram Rajan’s tenure at the RBI has seen the introduction of differential banking; while two universal banks have been launched, licences have been given for 10 small finance banks and 11 payments banks. Moreover, policy improvements have been introduced across several areas from less forbearance for lenders with regard to stressed assets or tighter norms for non-banking financial companies. Most important, Rajan ushered in inflation targeting with the consumer price index as the benchmark, as recommended by the Urjit Patel Committee. The governor also introduced several steps to further financial inclusion.

“Today, I feel proud that we at the Reserve Bank have delivered on all these proposals,” Rajan, who also served as the chief economic adviser under the UPA regime under then finance minister P Chidambaram before taking over as the RBI chief, said. The governor wrote that he is an academic and has always made it clear that his ultimate home is in the realm of ideas. “The approaching end of my three year term, and of my leave at the University of Chicago, was therefore a good time to reflect on how much we had accomplished,” he told his colleagues.

According to him, while all of what the central bank had laid out on September 4, 2013, has been accomplished, two subsequent developments are yet to be completed. “Inflation is in the target zone, but the monetary policy committee that will set policy has yet to be formed,” he added.

He added that because the RBI has worked with the government over the last three years to create a platform of macroeconomic and institutional stability, India will be able us to ride out imminent sources of market volatility, like the threat of Brexit. “We have made adequate preparations for the repayment of foreign currency non-resident (B) deposits, and their outflow, managed properly, should largely be a non-event,” Rajan said.

According to the governor, the reforms being taken by the government, together with what will be done by RBI and other regulators, will build on the platform and reflect in greater job growth and prosperity for our people in the years to come.

Career path

1991: Joined Booth School of Business at University of Chicago, went on to become professor of finance
October 2003 to December 2006: Served as chief economist at IMF
November 2008: Appointed honorary economic adviser by Manmohan Singh
2009: Became member of Ameri- can Academy of Arts & Sciences
2011: Served as president of American Finance Association
2012: Became member of Group of Thirty
August 2012: Appointed chief economic adviser to India’s ministry of finance
August 2013: Appointment as RBI governor announced
September 4, 2013: Took charge as 23rd governor of RBI

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