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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
  • 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

The Government Shutdown in Washington D.C

At a recent event to sign the LOVE act into law, Bowser – flanked by grateful newlyweds – said, “Just so my team knows, we’re probably going to want to keep that power.”

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District of Columbia Mayor Muriel Bowser, seated, holds the LOVE Act she signed, Jan. 11, 2019. VOA

No city experiences a shutdown quite like Washington.

Besides the economic impact, a shutdown warps the nation’s capital on a cultural, recreational and logistical level — touching everybody from garbage collectors to young parents, prospective newlyweds to aspiring Eagle Scouts.

The current partial shutdown , now in a record fourth week, has also provided a quiet boon for Mayor Muriel Bowser’s government, which rushed into the void to claim unprecedented new powers while making a public show of literally cleaning up the federal government’s mess.

The economic situation is, of course, brutal. Recent surveys estimate that the federal government directly employs more than 364,000 people in the greater Washington area including northern Virginia and southern Maryland. The District of Columbia alone — population 700,000 — contains more than 102,000 jobs in agencies that are now without appropriations funding.

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People rally to call for an end to the partial government shutdown in Detroit, Thursday, Jan. 10, 2019. VOA

Deputy City Administrator Kevin Donahue made the analogy to the main plant shutting down in a factory town — with the subsequent knock-on effect through the service industries like restaurants, food trucks, entertainment and taxis.

“What keeps us up at night is not the work we know we have to do in weeks one and two,” Donahue said. It’s the unpredictable impacts of weeks four and five and onward, he said, with the potential for mass restaurant closures or residents missing payments on rent, mortgages, car loans or school fees.

Most immediately, the shutdown created a logistical and public health problem. The district is riddled with National Park Service land, ranging from the National Mall to urban green spaces like Dupont Circle and dozens of neighborhood parks.

Washington sanitation crews now empty the trash bins at 122 separate NPS sites — three times a day in the case of the bins at the National Mall. It’s costing at least $54,000 per week in overtime, and Donahue said there’s a handshake agreement dating back to previous shutdowns that Washington will be compensated when the government reopens. The NPS recently announced it would tap into other funds to resume its own trash pickup at some — but not all — of the Washington sites.

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A U.S. Internal Revenue Services employee holds signs in front of the federal building at a rally against the U.S. federal government shutdown, in Ogden, Utah, Jan. 10, 2019. VOA

“There’s a past practice of reimbursement,” Donahue said. “But they don’t have a legal obligation to compensate us.”

Given Washington’s tortured relationship with the federal government, which can essentially alter or block any local law, city officials have seemingly relished the chance to highlight the ironies of the moment. They frequently claim they are treated by Congress as if they can’t handle their own affairs; now they’re taking over and covering for a dysfunctional central government.

“When the federal government shuts down, we step up,” Bowser said during a Jan. 4 news conference with Washington’s nonvoting congressional delegate, Eleanor Holmes Norton, to announce a renewed push this year for district statehood.

The shutdown cuts a cultural swath through the lives of city residents. The entire Smithsonian network of museums, including the zoo , closed their doors about a week into the shutdown, and quasi-federal entities like the John F. Kennedy Center for the Performing Arts have severely cut back their hours.

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Air passengers heading to their departure gates enter TSA precheck before going through security screening at Orlando International Airport, June 21, 2018, in Orlando, Fla. (VOA)

On a recent weekend, the usual Saturday morning kids’ drumming workshop at the BloomBars cultural center in Columbia Heights drew nearly triple the usual crowd, with parents and strollers lined halfway up the block in the rain. The reason: desperate parents searching for something to occupy their kids in a city where more than a dozen free museums and the zoo have been shuttered.

“It happens every time,” laughed BloomBars founder John Chambers, who recalls an identical spike during the 16-day 2013 shutdown. “But this time it feels like there’s more of a panic among people because (this shutdown) genuinely seems open-ended.”

The district is littered with shutdown specials — offering furloughed federal employees discounts on everything from food and drink to live theater and medical marijuana .

Examples of unexpected shutdown fallout are all around. High school senior Yosias Zelalem was all set to secure his Eagle Scout rank with a project to repair park benches along the Mount Vernon Trail. But his liaison at the NPS has been furloughed and the project is frozen.

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Tourists arrive to visit the U.S. Capitol on a rainy morning in Washington, Dec. 28, 2018, during a partial government shutdown.. VOA

“I didn’t really think about it until New Year’s came and went,” said Zelalem, who needs to complete the project before he turns 18 on March 27. “I honestly didn’t expect it to go on this long. Now everybody’s talking like this could go for months.”

One of the more random side-effects of shutdown: the closure of the marriage bureau.

Bowser told The Associated Press that even she was surprised to learn that local couples couldn’t get their marriage licenses because Congress funds the local court system. Divorce proceedings, however, were unaffected.

Also Read: Democrats in Congress Squarely Responsible for the Shutdown: Donald Trump

Bowser quickly tapped allies on the Council of the District of Columbia to pass emergency legislation called the Let Our Vows Endure (LOVE) act, which granted her administration the right to issue marriage licenses. In addition to an enjoyable public victory that drew national attention, Bowser’s administration just stepped into the federal void to claim a whole new power ahead of an impending district statehood push.

At a recent event to sign the LOVE act into law, Bowser – flanked by grateful newlyweds – said, “Just so my team knows, we’re probably going to want to keep that power.”

Nobody laughed and she didn’t seem to be joking. (VOA)