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Fear Of Economic Volatility Raises as RBI Governor Decides To Resign

There has been widespread speculation that Rajan quit because of what some termed as “discouraging signals” from the government.

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Image Source: Financial Express
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  • India is now the world’s fastest-growing major economy
  • Raghuram Rajan helped stabilize India’s currency when the rupee was plunging and inflation was raging
  • Praising Rajan’s contribution, Finance Minister Arun Jaitley expressed confidence his successor will be a “good person”

The Indian Central Bank governor’s decision not to seek a second term in office has raised concerns the country could face a loss in investor confidence and economic volatility. The widely-respected economist, Raghuram Rajan, is credited with making an important contribution to India’s economic turnaround after a choppy phase.In a signal of uncertainty looming ahead of his departure in September, the rupee fell to a one-month low Monday.

Rajan’s departure: not a big surprise

Rajan’s weekend announcement to quit came after weeks of speculation on whether the government will renew his tenure as head of the Reserve Bank of India (RBI). In a letter to his staff, Rajan said he had been open to staying on to see through the reforms he had begun, but that “on due reflection and after consultation with the government,” he was returning to his “ultimate home in the realm of ideas.”

Widely feted as one of the world’s best Central Bank governors, the former International Monetary Bank economist helped stabilize India’s currency when the rupee was plunging and inflation was raging. As growth momentum returned, the country regained credibility among international investors, who had turned their back on emerging economies.

India’s economy is soaring

While countries like Brazil and Russia continue to face hard times, India is now the world’s fastest-growing major economy.

Finance Minister Arun Jaitley sought to calm investors Monday telling a television network “the country’s economy is driven by strong fundamental factors.” Praising Rajan’s contribution, he expressed confidence his successor will be a “good person.”

Finance Minister Arun Jaitley speaks to RBI Governor Raghuram Rajan during a convocation ceremony for students at a university in Mumbai on January 9, 2015 Image Source: NDTV Profit

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Symbol of stability

The head of emerging market economics at JP Morgan, Jahangir Aziz, stressed that Rajan was a symbol of stability for many investors. “They have invested on the fact that India has managed to put together a reasonably strong story of macro-economic stability. Many of them associate that in part to the Reserve Bank of India, Raghuram Rajan.”

Aziz said investors will watch to see whom the government appoints as Rajan’s successor and would like to see continuity in policies. “The need of the hour is to calm down market nerves,” he says.

There has been widespread speculation that Rajan quit because of what some termed as “discouraging signals” from the government.

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There was criticism of Rajan

Rajan was not without his critics, who said his refusal to slash interest rates, and a clean-up of bad loans he was pushing at state-owned banks, were choking private investment. The most vocal attack came from a member of the ruling Bharatiya Janata Party, Subramaniam Swamy, who raised eyebrows with his comment that Rajan was “mentally not fully Indian” and complained that he had not acted to ease the heavy debt burden of many Indian companies.

Although India’s economy is growing at over 7 percent and has overtaken China as the world’s fastest growing economy, Rajan has repeatedly cautioned that India’s economic recovery still rests on fragile foundations.

Economist Rajiv Kumar at New Delhi’s Center for Policy Research said fears about the impact of Rajan’s exit could be overblown and pointed out that stock markets did not tank Monday as many had feared. “It’s institutions that matter, and the RBI has known to be a very competent institution with huge inherent strengths,” says Kumar.

Meanwhile, the government ushered in more economic reforms Monday, announcing sweeping changes to rules on foreign direct investment by opening up its defense and civil aviation sectors to complete outside ownership, and loosening some restrictions on the pharmaceutical and retail sectors.(Source :VOA)

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  • Vrushali Mahajan

    This is really sad to know. Rajan has helped the Indian economy soar high. He is a man with ambition and great personality. Also, IMF says India would outspace China’s slowing economy. So, this should be looked after.

Next Story

RSS’ call to re-mould Indian Constitution

RSS chief Mohan Bhagwat says that the Army takes six to seven months to train its soldiers, the RSS can get its cadres ready for battle in two to three days

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The Sangh Parivar, better known as the Rashtriya Swayam Sewak Sangh (RSS) celebrated the 125th anniversary of the song in 2002
The Sangh Parivar, better known as the Rashtriya Swayam Sewak Sangh (RSS) celebrated the 125th anniversary of the song in 2002. Wikimedia Commons
  • RSS (Rashtriya Swayamsevak Sangh) is a is an Indian right-wing
  • RSS chief Mohan Bhagwat expressed his views on Indian Army’s preparation in his speech to RSS workers in Muzaffarpur in Bihar
  • Kiren Rijiju said if the Constitution permits, RSS can go ahead with its interference in military matters.

The Rashtriya Swayamsevak Sangh wants to re-mould the Indian State with a military which adheres to Hindutva, the Communist Party of India-Marxist (CPI-M) has said.

This is the message that emerges from RSS chief Mohan Bhagwat’s speech to RSS workers in Muzaffarpur in Bihar that while the Army takes six to seven months to train its soldiers, the RSS can get its cadres ready for battle in two to three days, the CPI-M said.

“This remark has drawn widespread condemnation, with the main criticism being that the RSS chief had insulted the Indian army by claiming that the RSS can do a better job than the Army in training soldiers,” an editorial in the CPI-M journal “People’s Democracy,” said.

Also Read: Story 20 Amazing Facts About Indian Navy That Everyone Should Know

“While this criticism is valid, the intent of these remarks is much more serious,” it said. “The statement has revealed a vital aspect of the RSS outlook about the Army and the militarization of society.”

The editorial said: “What the RSS wants in the re-moulding of the Indian State is armed forces which adhere to Hindutva. For Bhagwat, the soldier in the Indian Army and the Swayamsevak of the RSS are on the same footing.

RSS support Hindus
RSS world’s largest organisation promote Hindutva.

“Under the present Indian Constitution, such an integration of the Army and the RSS is not possible.

Also Read: All you want to know about the ranks of Indian Army

That is why, both the RSS clarification and the defence put out by (Minister of State for home) Kiren Rijiju makes this qualification that if the Constitution permits, the RSS can go ahead with its interference in military matters.

“The implication is ominous: a re-worked Constitution should enable this to happen.”