India’s “rock star” central bank Governor Raghuram Rajan, feted by foreign investors but under pressure from political opponents at home, stunned government officials and colleagues on Saturday by announcing he would step down after just one three-year term.
Rajan, a former chief economist at the IMF, is held in high esteem by policymakers and investors at home and abroad for overhauling the way the Reserve Bank of India (RBI) operates.
However, he has faced mounting criticism from a faction within Indian Prime Minister Narendra Modi’s ruling party for keeping interest rates high and over a perception that he had begun to stray into politics.
In a letter to RBI staff, Rajan said he planned to return to academia, even as he noted two of his actions — the creation of a monetary policy committee to set interest rates and the clean-up of the heavily indebted banking sector — remained unfinished.
“While I was open to seeing these developments 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 Sept. 4, 2016,” Rajan wrote. “I will, of course, always be available to serve my country when needed.”
It is going to be the first time since 1992 that an RBI governor has departed after a single three-year term.
A senior government official told reporters there were seven candidates on an initial long list to replace Rajan.
While there had been some speculation Rajan might not stay for a second term, government officials said they were surprised by the timing and manner of the announcement.
“Rajan put this in an open letter. It’s his decision and we will do what best can be done,” one senior aide to Modi said.
Hailed as a “rock star” and “James Bond” by India’s media when he was appointed by the previous Congress government in September 2013, Rajan won praise for his sure-footed handling of the country’s worst currency crisis in more than two decades.
“The government appreciates the good work done by him and respects his decision. A decision on his successor would be announced shortly,” Indian Minister of Finance Arun Jaitley said in a tweet on Saturday.
Indian Congress Minister P. Chidambaram, who appointed Rajan, said he was profoundly saddened by the decision.
“I am not surprised at all. The government had invited this development through a craftily planned campaign of insinuations, baseless allegation and puerile attacks on a distinguished academic and economist,” he said in a tweet.
Rajan, who is on leave from the University of Chicago, had faced strident criticism from right-wing members of Modi’s Bharatiya Janata Party, including member of parliament Subramanian Swamy, who has waged a campaign against his economic policies.
Swamy, a Hindu nationalist and former Harvard economist, tweeted his delight that Rajan “has said he will go back to US. Whatever fig leaf he wants for hiding the reality we should not grudge it. Say goodbye!”
Swamy had described Rajan as “mentally not fully Indian.”
Another senior official said Rajan’s criticism of rising intolerance in India was seen as direct interference in politics, complicating a decision on whether to reappoint him.
“I wasn’t aware of this and I don’t think any of us were,” a senior policymaker who works closely with Rajan said. “Looks like the government has taken a decision and he [Rajan] came to know about it and then sent this letter.”
Rajan’s departure was likely to roil markets today, analysts said, at a time when global factors such as Britain’s referendum on EU membership are already weighing.
In a move to pre-empt concerns the government lacked a credible field of replacements, the senior official said the candidates on the long list to succeed Rajan included RBI Deputy Governor Urjit Patel and State Bank of India chair Arundhati Bhattacharya.
The others are Vijay Kelkar, Rakesh Mohan, Ashok Lahiri, Subir Gokarn and Ashok Chawla, the official said.
They are mostly veterans of the RBI, the Indian civil service or the IMF and the World Bank.
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