Rajan's exit is how we view it

Rajan’s exit from the RBI has generated as much press and controversy as his three year tenure as the governor of the central bank. It would have been surprising if it were any different. In a country of subdued central bankers, Rajan’s personality stood out as much as his legacy of being one of the leading Indian economic figures in the world today. He is articulate, he is confident and he has an enormous capacity to withstand pressure. He undertook banking sector reforms, which will show their mark for a long time to come and during his tenure, inflation rate halved, albeit with generous help from the global commodity price decline.

Yet, there are undeniable benefits to Rajan now being free for pursuits other than being the governor of the RBI. For one, someone of Rajan’s calibre is an asset for any government at a time when the country is facing global headwinds like never before and can benefit from someone who has a global perspective and work experience. He has also an asset in dealing with the NPA challenge faced by India’s banks. However, once structural change has been initiated, it is a question of only seeing it through with an appropriate implementation mechanism in place. Therefore, beyond a point, his role transitions from being a builder of systems, to an overseer. Further, going forward it can reduce to tweaking interest rates and liquidity management. It is thus an incremental role, and that might not always do justice to someone of Rajan’s talent.

If the centre requires his expertise on further cleanup of Indian banks, there is no reason why a new committee cannot be appointed under his leadership. He has already said that he is there to work for his country when required in the future. For specific areas of work, he does not also need the entire paraphernalia that comes with being the RBI governor. Particularly, so far as it also entails moving the policy repo rate up and down by 25 basis points on a bi-monthly basis (or not). Any competent economist, who has been in the system for a reasonable number of years of experience, can take over the responsibility.

Bringing in Rajan’s talents to aid with specific areas would also relieve him of constant spotlight. While spotlight is crucial at times when important points need to be made to a wide audience, not everything that an economist or policy maker does, requires it. In fact, research, which then drives policy action, by itself requires a lot of reflection, quiet and an environment free of distraction. When there is constant questioning and debate on the one hand about everything that is in process on the one hand and insults and praises being heaped on the other, this is hardly an environment conducive to anyone’s best work.  

In fact, allowing him to operate from an academic environment while also engaging with the government on specific issues gives him a tactical advantage. His detractors have less ammunition to either target him or engage him in controversy, while the critical work that requires doing gets done. Even if his move to resign from the RBI is a retreat on his part, it still has strategic benefits in the form of a better vantage view and a more secure position to work from.

Also, do recall, that Rajan’s highlight research in recent memory has been calling out the recession. From the person who spotted that, we really look for more seminal research, even if it is a very tall order. After all, there is not a raging depression to call out every day. But the point is, that in the event that a black swan does threaten to show up, he has more credibility than most others to flag it. As a policy maker, he unlikely has the bandwidth to carry out such path breaking research.  

Further, Rajan, during his tenure as the governor has blossomed into far more than just a leading economist, to become someone with widely expressed view on current affairs, ethics and social condition. For anyone who has been following his public talks during his tenure as the governor, it is clear that his interests range from literature and politics to of course economics and policy making. That he was an RBI governor all this while raised the bar for everyone’s thinking. And it has probably left everyone more widely intellectually enriched than would have been possible otherwise. Being free from the day to day responsibility of being a governor of a central bank, to being a thinking academic, might only fuel this aspect of his personality even more. His lectures and interviews have already been peppered with John Donne and Tolstoy, and it would be good to see more of his interests get drawn out as he expresses his views.

Rajan may have his detractors, but no one doubts his high intellect. And irrespective of where he is and what he does, just by virtue of who he is, there is so much that he can give to the world in terms of better thinking. He has mentioned in his parting note to the RBI employees that his ultimate home is the realm of ideas. And I am sure there are plenty more that we will get in the coming years, from him, that will continue to grow us.