In a surprise move that sent ripples across the financial sector, Governor of the Reserve Bank of India Raghuram Rajan announced on Saturday that he would not continue to head the central bank after his term expires on September 4.
Mr. Rajan announced his decision to RBI employees via an email which was published on the central bank’s website for ‘wider dissemination’. This is the first time during Dr Rajan’s tenure that his communication to staffers has been made public.
“I want to share with you that I will be returning to academia when my term as Governor ends on September 4, 2016,” he wrote and said the decision was taken after consultation with the government. “I will, of course, always be available to serve my country when needed,” the former IMF chief economist, who is credited with forecasting the global financial crisis of 2008, said. Speculation is rife on why Mr. Rajan decided not to continue and communicated his decision two and half months before his term ends. According to RBI insiders, the government’s decision to form a search panel, headed by a cabinet secretary to select financial sector regulators has not gone down well with the RBI governor as the governor’s post is also cabinet secretary rank. It is not clear if the search panel had started to look for candidates. This is the first time a formal search panel has been formed to select the RBI governor. In the past, the prime minister and the finance minister have held consultations to select the governor of the central bank.
There have been thorny issues between the government and the governor in the past — though both have played these down and blamed media speculation.
The Finance Ministry’s proposal in last year’s budget to hand over bond market regulation to the SEBI was criticised by Mr. Rajan following which the proposal was rolled back. More recently, Mr Rajan’s comment that India is one eyed king in the land of blind hadwas not gone well with ministers with Nirmala Sitaraman, minister of state for commerce criticised the comments in the media.
And for the last one month, Subramanian Swamy, the MP of the ruling Bhartiya Janata Party started a campaign to remove Mr Rajan from RBI governor post. In a letter to Prime Minister Narendra Modi, Mr Swamy urged not to extend the govenor’s term beyond September.
