Many blame Prime Minister Narendra Modi for Raghuram Rajan not seeking second term as RBI Governor and instead wanting to get back to being an academician.
One if closely looks at the kind of equation both men share one may be able to realise that it may not be the hostile behaviour by the PM or his cabinet that could have led to Raghuram Rajan not wanting to have a second term as RBI Governor.
Prime Minister Narendra Modi and RBI Governor Raghuram Rajan both are known to be practical men who know which wars to wage and when to back down. This could have been a strong reason as to why RBI Governor has enjoyed complete support of PM.
Rajan too has completely aligned to the vision of PM. Both the men strongly believe in development of infrastructure, keeping rupee stable, giving a thrust to manufacturing, controlling inflation, giving boost to financial inclusion and giving support to entrepreneurs.
PM praising RBI Governor:
At the function that was hosted to celebrate 80th anniversary of the RBI, the great amount of respect that Prime Minister had for Raghuram Rajan was for all to see. When the RBI Governor decided to address the audience in Hindi in the presence of PM Modi, he got a big pat on the back from PM.
PM further added that economic is not his something that he could understand easily, but being PM he had to learn a lot and he said that he enjoyed three to four slide presentations coming from Rajan.
The presentations by Rajan, he said could make him understand the issue very easily and PM had also then said that from what he has learned during his bimonthly meetings with RBI Governor he could say that Rajan must would have been an excellent teacher. PM has supported RBI Governor completely knowing very well the value of honest opinion.
PM at the event was quoted to have said that, "There is lot of similarity between the thinking of the RBI and government... This is absolutely essential. As a representative of the government, I express my satisfaction. RBI is performing its role and I congratulate Raghuram ji and his team."
Finance minister Arun Jaitley too had thanked RBI Governor for his contribution towards making India a strong economy. PM had then asked RBI to prepare a 20-year road map for financial inclusion.
PM and RBI Governor both bank on old friends:
If PM Modi is known to bank on old friends for carrying out some tasks that are close to his heart Mr. Rajan is no different. It is said that within days of taking over, Mr Rajan had picked his IIM classmate and banker Nachiket Mor to help him figure out how to work for financial inclusion especially covering small businesses and low-income families.
His friend is now a member of the RBI's central board. Mr. Mor's committee had come up with the concept of "payment banks". The idea was that with an initial capital of Rs. 50 crore they would only accept deposits and lend no money.
Modi and Rajan both are anti-establishment outsiders:
If teetotaller PM who rises very early was like a jolt to Delhi's babus, who were used to late night dinners and golf in the morning, then Rajan too was a jolt to his staff.
Rajan it is said is in office sharp at 8:45 am after his gym and
walk. It is also said that he had asked that RBI be modernised and
that employees of the bank should act in toughest manner against
the defaulters and that they should not rate subordinates as
excellent in their reviews.
Second term for Rajan wouldn't have been bed of roses:
Definitely Raghuram Rajan has done a great job for India and one can't deny his contribution in making India a strong economy however, his second term had he accepted it would not have been easy one either. He would have had to face bad monsoon that would have brought down pace of growth.
He would have had to deal with higher inflation rate which would have ensured that he is not able to boost growth by further bringing down the rates.
Increase in oil prices would have worried him too as what benefit India earned by fall in global oil prices will be wiped out.
To clean up rising non-performing assets in the banking sector was never going to be easy.
Also recapitalising public sector banks to get their balance sheets right was never going to be easy.
He would have also had to push for reforms and make banking sector more competitive by allowing more foreign banks.