Banking reforms: Rajan’s exit likely to wreck these

“In the republic of mediocrity, genius is dangerous,” said Robert Green Ingersoll, the great agnostic in the golden age of free thought, conforming to the Japanese proverb “the nail that sticks out shall be hammered down”. If you are too good and stand out in a crowd, you will find people taking shots at you.
This exactly has been the case with the Reserve Bank of India Governor Raghuram Rajan, who has jolted the nation by giving us a negative surprise, with his sudden decision to walk away after his term that ends on September 4 this year. Perhaps it was his vigorous drive to clean up banks that brought him into a dogfight with vested interests among political leadership and crony business community. The former International Monetary Fund chief economist had backed efforts to create a monetary policy committee and strongly advocated fiscal discipline to boost India’s credibility with bond investors. Rajan had taken charge of the central bank when the rupee was at a dismal low and the inflation rate was fast. After tight monetary policy and a crash in global oil prices helped damp price pressures, he began cutting borrowing costs last year and brought the benchmark rate to a five-year low of 6.5 percent. The RBI Governor is now making strenuous efforts to cleanse the stressed assets in the banking system.
Paradoxically, it is not an unexpected move as it came in the aftermath of a key ally of Prime Minister Narendra Modi criticizing him for keeping interest rates too high. When reports of Rajan’s desire to leave the post emerged, the rupee and bonds fell. As expected, at a recent conference in Singapore, investors overwhelmingly wanted Governor Raghuram Rajan to continue.
However, despite his efforts to cleanse the system, he apparently felt that he lacked support from his bosses — the Prime Minister, Narendra Modi, and Finance Minister, Arun Jaitley. To add to his woes, Subramanian Swamy, a 76-year-old former Harvard economist with a record of aggressive anti-corruption litigation, wrote an open letter to Narendra Modi accusing Raghuram Rajan of being “mentally not fully Indian” and urging on the prime minister to “terminate” him with immediate effect.
Ironically, Rajan had joked when he took over the top RBI job in September 2013 that he wasn’t expecting to win any votes or Facebook ‘likes’ in the position. But now when he has offered to quit, he was trending on Twitter with tweets like “We really have no respect for good, capable people. We deserve the mediocre lot thrust on us” and “Minimum governors, maximum government”. Alas in the midst of all this we are going to lose a good Governor!