Sources reveal that the government has yet to finally decide on re-appointing Raghuram Rajan, whose current term as the RBI governor ends in September this year. The final decision on Rajan is likely to be taken post July after gauging the global economic conditions and especially the mood of global investors who regard Rajan as one the few credible governors that emerging economies have had in such turbulent times. With over-indebted domestic corporates coupled with the capital starved public sector banks, India does need humongous foreign investment to fund its growth. Attracting such inflows, (FDI or FIIs), especially into any emerging economy, depends on the global credibility of its Central bank’s governor. “Rajan has that global reputation which he has admirably lived up to,” says Phani Sekhar, fund manager with Karvy Capital, a fact that even the government acknowledges.
Normally, foreign money comes into a particular country on the assumption that its currency would not depreciate further because overseas investors lose their money in such a scenario. Rajan has delivered on that front. Rajan’s astute management of India’s monetary policy has indeed checked the rupee’s slide. “If he had cut the interest rates too frequently, as demanded by industry and the government alike, the value of rupee would have gone down to over Rs 75 to a dollar” says Basant Maheshwari, who runs the investor’s education forum, the Equity Desk. Global investors want the Central bank governor to be independent-minded and expect him to do things that supports growth in the longer term. They look for longer term economic stability which goes beyond the life of one government. “This is exactly why institutions are needed in any well-functioning democracy and that is where the RBI (like India’s election commission) has delivered,” adds Sekhar.
Rajan’s foremost contribution has been to tame the retail inflation which common people negotiate with in their day to day lives.
He also took the bull by its horns when it came to pressurising the public sector banks to acknowledge and clean their books of all the bad loans that were hidden for years.
The regulatory laxity shown by the RBI post 2009 (and which actually aggravated the NPAs problem) was not given a lease of life by Rajan. The fact that the shares of SB I (India’s premier public sector bank) went down by over 50% in the last three years indicate how bad the asset quality of India’s PSBs had been. Many say that his pressure on banks to declare their bad assets actually earned Rajan quite a few enemies who are actively resisting his re-appointment.