RBI chief not to seek second term

Raghuram Rajan

Indian investors are reported to be unsettled by the decision of the country’s central bank chief, who was appointed to the post in 2013, to return to academia and not to seek a second term of office.

Raghuram Rajan, governor of the Reserve Bank of India (RBI) said that he will resume his tenure at the University of Chicago when his three-year term as governor ends on September 4. His departure is widely regarded as a major setback for economic reform in India.

Last week, Rajan called on Indian states to improve their cash management flow and explore the option of raising funds through innovative debt instruments. He was addressing the annual Conference of State Finance Secretaries (SFS), the 29th such even hosted by the RBI, which was held in Mumbai a day before he announced his decision not to seek a second term.

RBI is to offer guidance on best practice in cash management, with contributions from its stakeholders. Other issues discussed at the conference included the need for Indian states to adopt best practices in debt management, diversify their investor base, extend the maturity of issuances and ease redemption pressure.

“The Governor stressed on the need for states to explore ways for better cash management, adequate information dissemination of state finances, pro-active engagement with investors and exploring the possibility of issuing innovative debt instruments on the lines of inflation-indexed bonds and sovereign gold bonds,” a statement by the RBI read.

During the meeting, attended by finance secretaries of 28 Indian states and the territory of Puducherry, Rajan presented a snapshot of India’s macroeconomic situation. He said that the RBI’s efforts over the past couple of years have aided India’s macroeconomic stability by easing inflationary pressures and providing relative stability for its currency, the rupee (INR).

Following the announcement of his departure Rajan issued a letter to RBI staff. He said he had been open to staying on to see through the reforms he had initiated, but that “on due reflection and after consultation with the government” he was returning to his “ultimate home in the realm of ideas”.

“Raghuram Rajan will exit India’s central bank after unnerving political leaders with calls for free speech and religious expression,” a report by Bloomberg noted. “The focus now shifts to whether prime minister Narendra Modi can find a successor able to command credibility both with investors and his Hindu-based party.”

Names cited in local reports as a potential successor to Rajan include State Bank of India (SBI) chairperson Arundhati Bhattacharya and Urjit Patel, the RBI’s deputy governor and financial services secretary Hashmukh Adhia. Other possible contenders include former RBI deputy governor Subir Gokarn, Securities and Exchange Board of India (SEBI) chairman U K Sinha and the economist and former chief economic advisor Kaushik Basu.

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