Bets are on: will a Modi govt retain RBI governor Rajan?
Strategists in Modi's Bharatiya Janata Party (BJP), confident that
his jobs-first policy pitch will secure a strong voter mandate, suggest
that they would prefer to have one of their own at the helm of the
Reserve Bank of India (RBI).
That sets the stage for a confrontation with RBI governor Raghuram
Rajan, who since being appointed last September has enjoyed an unusually
smooth ride in a country where governments often treat the RBI as a
punchbag for their own policy failings.
The former International Monetary Fund chief economist is widely
viewed as India's most capable technocrat, winning the respect of
investors for his handling of a currency crisis that hit the country's
economy last year.
"It will be a big loss of face for the country and would create a
negative perception among foreign investors if the BJP removes the
governor immediately after forming the government," said A Prasanna, an
economist at ICICI Securities Primary Dealership Ltd in Mumbai.
Read: RBI voices concern over LS polls, keeps key policy rates unchanged
Before moving to the RBI, Rajan, 51, served as chief economic adviser
to the finance ministry under the Congress party-led government, which
opinion polls say faces defeat in the five-week national election
starting on Monday.
BJP treasurer Piyush Goyal has attacked Rajan over a series of
interest rate hikes intended to curb inflation, now running at double
the RBI's longer-term 4 percent target, at a time when economic growth
has fallen to its slowest in a decade.
Rajan has raised the repo policy rate three times by a total of 75 basis points to 8%.
"Governor Rajan is only aggravating the problems and making them
worse by increasing interest rates," Goyal, a leading strategist and
fundraiser for the nationalist opposition party, told the Economic
Times.
Subramanian Swami, a BJP ideologue and former cabinet minister with
close ties to a Hindu grassroots movement that has shaped Modi's
thinking, puts it more bluntly: "We can make it worthwhile for him to
leave," Swami told Reuters.
"I would not be surprised if a government led by Narendra Modi
removes the governor," said Satish Misra, an analyst at the Observer
Research Foundation, a Delhi-based think-tank. "Modi does not brook any
opposition."
Good cop, Bad cop
Rajan's policy and academic credentials - he was a professor at
Chicago's Booth School of Business - qualify him as a card-carrying
member of the policy jetset that gathers twice a year at the IMF's
Washington headquarters or at Group of 20 meetings.
Yet his autonomy as central bank governor is more circumscribed than
that of his counterparts in the West, who are typically nominated by the
government but also accountable to lawmakers.
Under the RBI Act of 1934, Rajan serves at the pleasure of the
government: "The central government may remove from office the Governor,
a Deputy governor or any other Director," it says.
While no RBI governor has been sacked in the central bank's 80-year
history, two have quit before completing their terms - most recently Sir
Benegal Rama Rau, who resigned in 1957 due to differences with the
finance minister.
In that context, analysts interpret the verbal broadsides as a
softening-up exercise intended to secure greater RBI compliance with
Modi's expansionist credo.
Read: Modi has 'deep flaws' in his character: Finance minister Chidambaram
To be sure, Rajan has moderated his rhetoric on inflation but
analysts said that is more a response to cooler inflation than anything
else.
Arun Jaitley, a BJP leader tipped to assume either the finance or
home affairs portfolio in the next government, has meanwhile avoided
confrontation. Asked about Rajan in a TV interview last month, Jaitley
said: "If someone is doing good job, he will certainly continue."
Manufacturers and traders, a constituency of the right-wing BJP, have
complained that the RBI under Rajan has allowed the rupee to recover
too strongly with a near 15% rally from last year's slump, hurting
India's export competitiveness.
The Confederation of Indian Industries (CII) has called for a cut in
interest rates of 100 basis points and a more competitive exchange rate
to support domestic manufacturers.
HT Edit | RBI is waiting for new government before making policy moves
Savvy operator
Rajan's former colleagues at the finance ministry say he is a
pragmatic and politically savvy economist who may yet find a way to work
with a BJP-led coalition government that pundits say is most likely to
be formed after votes are tallied on May 16.
For his part, Rajan cautions that coalition building may not go as
smoothly as bullish foreign investors may expect. They have bought $10
billion in Indian stocks and bonds this year, driving the BSE Sensex to
record highs.
Speaking on Tuesday after the RBI kept its key rate unchanged, Rajan
cautioned that "we have to be prepared for some turmoil" in the event
that the next government is not stable.
As long as the next government shows proper concern about the economy
and the fiscal situation, Rajan added, "I would suspect that after an
initial bout of turmoil there might be a reassessment which may be more
positive".
Those statements represent a careful deployment by Rajan of his
credibility with markets to guard against any attempt by a BJP-led
government to render his position untenable.
"It would not be easy to remove Rajan from a constitutional post,"
said a senior finance ministry official, who spoke on condition of
anonymity. Explaining why, he used the same words as Rajan: "It would
lead to turmoil in the markets.
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As part of its aspirations to build a regional navigational system equivalent to the Global
One can expect a good encounter as both teams have a lot in common going into the big semi-final clash here tomorrow.
Both
Sri Lanka and West Indies have had identical victories in their final
group league encounters in which they had crushed their respective
opponents for paltry scores of less than 100 runs.
Both the sides
boast of world class spinners, who are winning games on a consistent
basis. While Rangana Herath would want to repeat his Chittagong heroics
with another superlative effort against the Gayles and the Bravos, the
Jayawardenes and the Sangakkaras will be equally wary of the threats
that will be posed by Messrs Sunil Narine and Samuel Badree.
Sri
Lanka have good memories of the Shere-e-Bangla Stadium here as they
lifted the Asia Cup at this very ground not even a month ago.
Narine
and Badree with six and 10 wickets, respectively, have justified their
top billings of No. 1 and 2 in the ICC`s List of T20 bowlers.