A lot has been written on this issue which has sharply divided economic commentators over the past few weeks… a heady mix of politics, governance, economic policies, his charisma and even Shobha De’s starry-eyed comments! More than Brexit, most foreign institutional investors I am in touch with have the question of Reserve Bank of India (RBI) governor Raghuram Rajan’s replacement on their minds.

It is thus important now, after all the emotional outbursts, to dispassionately analyse the event under three captions: the policies followed by RBI under his watch, the importance given to meritocracy in our governance framework whilst building institutions, and the cultural challenges of driving fundamental change in India; and form a reasoned view of what to watch out for as indicators of the way forward.

His policies have resulted in taming inflation and cutting it to half, raising foreign exchange reserves through FCNR(B) deposits, providing stability to the rupee amidst turmoil in emerging market currencies, transparent licensing norms for awarding banking licences, forcing banks to recognize and provide for hitherto undisclosed bad debts and finally the roll-out of the United Payments Interface for mobile P2P payments. Jaitley and he can jointly be credited for enacting laws to curb automatic monetization of the fisc, imposing statutory limits on fiscal profligacy and a formal monetary policy agreement signed between the government and RBI. Impressive achievements considering the situation when he took over in 2013.

One can argue, though, that his resistance to Prime Minister Narendra Modi’s pet Mudra Bank project (to fund 60 million unorganized businesses with a capital requirement of ₹ 12 trillion) was due to his being out of sync with the concept of India’s unique unorganized economy represented by the likes of Tirupur, Sivakasi, Rajkot or Bhatala—entrepreneurship models based on community conglomerations almost fully disconnected from the formal banking system and funded mainly by cash with interest as high as 30-120%. This is probably the only policy area where his expertise was lacking.

With Brexit now a reality, expansionary fiscal policies globally and volatility in capital flows is a given; coupled with the uncertainty of Fed actions, a strong dollar outlook and the looming maturity of $20 billion in FCNR(B) bonds in a few months, pressure on emerging market currencies, including India, will be accentuated; Rajan’s calming influence will be sorely missed as we negotiate this whilst taming rising inflationary expectations once again.

There is a clear cultural context in India in terms of the resistance to the type of change being brought about by Rajan as it fundamentally affects the deeply entrenched interests across the spectrum. Rajan has paid for the zeal he has shown in taking on the system in an unbiased, professional and fully transparent manner.

I am convinced this is to do with our feudal national mindset and a deep-seated dislike in the Indian psyche for professionals who are unbending in fulfilling their statutory duties, and who have the courage of conviction to stand up against the powers that be, or indeed against the high decibel, “noisy" opinion of the illiterate or compromised majority.

During my stint as the CFO and BT shareholder nominee of Wipro BT, the finance director of British Telecom had forewarned me in 1995 that I, being an Indian chartered accountant with a western outlook and training, would face stiff resistance from the dominant controlling interests in promoter-driven Indian firms if I brought about radical change in processes to ensure transparency and financial discipline. As things played out over many years, the wisdom of his advice dawned on me as I tried to implement many global best practices in the sensitive domain of corporate finance and governance. Not being politically inclined worsened matters.

More famously, Sam Pitroda faced motivated campaigns and personal threats post the Rajiv Gandhi regime in 1988 despite his exemplary work in ushering in our telecom revolution. The list is long. Cultural transformations take generations.

Rajan, too, has been a victim of precisely this thinking. The decision for his ouster has regrettably proven, once again, that this trait continues to remain the core issue plaguing the country’s governance system. Subramanian Swamy’s tirade, in hindsight, was nothing more than setting the stage for his removal.

I am disappointed, though, that my very high hopes in Prime Minister Narendra Modi’s ability to resist this pressure was eventually proven wrong; I had thought Rajan would have been the ideal bulwark in his war against the status quo and cleansing the system in which he has had remarkable success thus far.

I have no doubt in my mind that what is playing out is a case of shadow boxing (with Swamy donning the gloves) between different political groupings within the Sangh Parivar and Modi’s progressive economic policies. Modi would have done well to stand by people such as Rajan to ensure he ultimately emerges victorious in his efforts to drive meaningful change in the country.

More importantly, he must use his enormous goodwill and electoral clout in building democratic institutions to promote mechanisms for consultation, debate and reasoned outcomes; filling them with the likes of Chetan Chauhan, Pahlaj Nihalini and Gajendra Chauhan is not helping the cause.

The success of Rajan’s unfinished agenda of creating the institution of monetary policy committee for rate setting, to isolate the individual actions of a potentially errant governor in the future, will depend on the centre’s will and wisdom to populate this with credible people and not servile individuals.

While the nation prepares to bid a painful goodbye to Rajan it will keenly watch Modi’s choice of the new governor, not so much for the credibility and competence which will undoubtedly exist, but for the trait of independent thought and the courage of conviction the incumbent possesses to implement correct, but unpopular, monetary policy initiatives in the interest of RBI and the nation during the coming economic turbulence.

Adieu Governor Rajan. Auf wiedersehen!

Prabal Basu Roy is a Sloan Fellow from the London Business School and a chartered accountant. The writer currently manages a PE fund and has formerly been director and group CFO in various companies.

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