Saturday, June 18, 2016

Goodbye and good luck

He always does things in style. No doubt, Raghuram Rajan - "R3" - had a degree of flamboyance, and an air of self-assured oblivion that made him the darling of those who knew next to nothing about what his real job was. To his credit, he did manage to halt - not reverse - the decline of the Rupee that UPA2's disastrous fiscal policies had induced. And today, when he decided not to accept a second term as RBI governor - of course, it was unknown whether he was even offered such a thing - he did it through a quiet message that has now taken Twitter by storm. That's R3, the man who makes ripples with a flick of his finger.

For the liberals who supported him for no particular reason (except maybe his sex appeal and impeccable English?), this is a day or mourning. All the hyperbole - monetary policy now being decided by havans and the likes - is to be accepted quietly, because people in grief tend to say stupid things. And His Holiness AK49 hasn't even spoken up yet, which means the show isn't over. On Monday, the markets may fall somewhat, more because of the uncertainty than anything else, and the FDI numbers will barely budge - real investors don't park their expectations on a Central Bank, less so its governor. That Rajan had to go was inevitable - the only reason he stayed so long was that Prime Minister Modi backed him, overruling everyone else. But the Prime Minister can only fend off opposition for so long.

Rajan has probably done the right thing - he deserves to be in academia. He is a thinker, a theorist, a man of ideas. Despite claims to the contradictory, the governor of the reserve bank of such a large country cannot control the economy, and their experiments will have little effect. That's not to say the the RBI Governor is not important - just not as important as people outside monetary policy would like to believe. The real turnaround in the economy has been about fiscal policy, as it always will be in any country in the world. Rajan was useful, sure, but real life has its limits. Academia is more forgiving for men of ideas. And teaching has a charm of its own.

His biggest project was cleaning up the banks from the UPA's mess, and that should be the primary goal of the next governor. Monetary policy is already being moved to a committee, which diminishes (rightly) the role of the governor. Therefore, bank regulation is the only major job left, aside from currency stabilization (which it rarely did anyway). With the biggest foreign reserves chest in India's history, Dr. Rajan has left the RBI with some big challenges but a lot of tools to deal with them as well. We wish him luck for his future endeavors.

Oh, and Subramaniam Swamy has lost a lot of fans. 

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