Speculation mount on Rajan successor; Markets brace for volatility

Speculation mounted today on who will be the next RBI Governor amid political parties attacking the government and alleging RSS-BJP conspiracy for Raghuram Rajan's no to a second term, which the economists and former policymakers termed as a 'bad omen' for the Indian economy.

Industry and marketmen were also concerned about possible negative impact on the stocks, bonds and currency markets when they open tomorrow morning, while regulator Sebi and stock exchanges beefed up their risk management and surveillance mechanism to address any eventuality.

Though there was no official word, the rumour mills were busy on who would helm the central bank next, a day after Finance Minister Arun Jaitley said a successor would be announced shortly for Rajan, whose term ends on September 4.

Deputy Governor Urjit Patel, former CAG Vinod Rai, SBI chief Arundhati Bhattacharya, Chief Economic Advisor Arvind Subramanian, World Bank Chief Economist Kaushik Basu and Economics Affairs Secretary Shaktikanta Das were among those being speculated as possible contenders.

Attacking the government for Rajan's decision against a second term, main opposition party Congress alleged that some BJP and RSS leaders were lobbying against him and called it the "most unpleasant thing" for the country.

Senior Congress leader Veerappa Moily said the present regime does not deserve a person of Rajan's stature, while RJD spokesperson Manoj Jha said the people were feeling "very safe and secure" with the kind of measures taken by Rajan.

Taking a dig at Modi government, Congress leader Manish Tewari said it could appoint absconding liquor baron Vijay Mallya as RBI Governor as he has "great experience" of banking system.

BJP MP Subramanian Swamy, who ran a tirade against Rajan, took a jibe at the outgoing Governor saying whatever "fig leaf" he wants for hiding the reality, the people should not grudge it and wish him 'good bye'.

Stating that he would always be available to serve the country when needed, Rajan had yesterday said he was "open to seeing" through his unfinished work on containing inflation and cleaning up the books of banks, but said no to a second term "on due reflection, and after consultation with the government". This was seen by some as indication that he could have been interested in a second term.

Eminent economists said the government letting Rajan go would be seen by the world as India's non-approval to a policy against inflation and bad loans, while former Finance Secretary Arvind Mayaram said it would be "very costly for the economy" and was not a "good omen". 

Rajan's colleague at Chicago University Booth School Luigi Zingales termed it is a "huge loss for India", while Harvard University professor Gita Gopinath said it was "deeply disappointing" that the government instead of fighting hard to keep Rajan has let him go amid all the distasteful comments by those questioning his commitment to India's best interests.

Indian-origin economist and British Labour Party leader Meghnad Desai said he feels "sorry for India's reputation abroad", while World Bank's Chief Economist and India's former Chief Economic Advisor Kaushik Basu said Rajan has been one of the finest central bank governors anywhere.

53-year old Rajan, a former IMF Chief Economist with a reputation to have rightly called the 2008 global financial crisis, yesterday made public his decision against a second term as RBI Governor after his currently three-year tenure.

Days before making this announcement, Rajan had said the RBI will survive any Governor and it is important not to "personalise this office" and it was bigger than any Governor.

Concerned that Rajan will be leaving at a "tumultuous" time, industry leaders said global factors are posing multiple risks to India's economic stability, even as they hoped the structural changes already brought in by him will yield positive results going forward.

Industry body Assocham even hoped that Rajan will be persuaded to reconsider his decision even as it observed that the way the public discourse and narrative on the entire issue took shape could have been avoided.

Rajan's decision to make public his decision against second term is being seen in some quarters as his unhappiness over the way things have developed in recent months with regard to a barrage of personal attacks on him from some quarters and the government reaction to that.

Echoing the sentiments of various top industry leaders from India, who termed Rajan's exit as "nation's loss", the economists from abroad and the former policymakers back home said it can prove to be "very costly" for Indian economy.

Harvard economist Gita Gopinath said the history will judge Rajan as one of the most effective central bankers of not just India but of the world".

Industry body Ficci said Rajan's contribution to Indian economy is "exemplary" and he would always be remembered for his outstanding work and he has been a huge factor in confidence building at a challenging time.  

Biocon chief Kiran Mazumdar Shaw said, "I know many voices in corporate India who are disappointed. Today we are in a very complex economic environment globally, a strong understanding of global economics and the kind of wisdom and experience Raghuram Rajan brought in to counter many of these kind of headwinds is something that we benefited from."

ICICI Bank chief Chanda Kochhar, however, said Rajan's decision was a "personal one" which everybody should respect, though she hailed him for playing a major role in steering the Indian economy in a volatile world.

"Today, India is the world's fastest growing large economy with stable macroeconomic indicators...India will continue to remain on a very robust growth path," she said.

The names doing the rounds for the next RBI chief also include ICICI Bank veteran and BRICS Bank head K V Kamath, former Advisor to Finance Minister Parthsarathi Shome, former RBI Deputy Governors Rakesh Mohan and Subir Gokarn, former Finance Secretary Vijay Kelkar, former CCI Chairman Ashok Chawla, former CEA Ashok Lahiri, noted economist R Vaidyanathan and Sebi Chairman U K Sinha.

Like Rajan, Sinha was made Sebi Chairman during the previous UPA regime but was given a surprise and rare extension by the NDA government in February days before his already extended tenure of five years was to end.

Another possible contender, Patel has been known as Rajan's 'inflation lieutenant', while Bhattacharya's tenure as SBI Chairperson also ends in September -- the same month when Rajan would demit office.

While most of these people could not be immediately contacted for their comments, Mohan said it is "premature to discuss" his candidature, while Bhattacharya had yesterday said that "Rajan is a person of very high caliber, who has built ably on the reputation of our central bank and given it a very large measure of credibility".

Rajan, who will have the shortest tenure as RBI Governor since liberalisation began in 1991, is also one of the few non-bureaucrats in this post.

Traditionally, applications have never been invited for the post of RBI Governor unlike many other regulatory posts.

As per the reports, a high-level panel -- the Financial Sector Regulatory Appointment Search Committee -- could have been tasked to shortlist the candidates, after which the government would take the final call.

However, it is not clear as yet whether the shortlisting would be done by this panel, headed by Cabinet Secretary P K Sinha, or by the Appointments Committee of the Cabinet (ACC) as has been the case traditionally.