Raghuram Rajan stepped down as governor of the Reserve Bank of India on September 5. A fiercely bright academic who served as chief economist of the International Monetary Fund between 2003 and 2007, Rajan is returning to his longtime job as a professor at the University of Chicago’s business school. India promoted from within, tapping RBI deputy governor Urjit Patel as his replacement.
Rajan leaves behind a complex legacy. He achieved much in three years — more than most central bank chiefs accomplish in far longer tenures. On his watch, inflation was cut to around 5%-6%, the upper end of the government’s long term target range but a number that until recently seemed out of reach for the South Asian economy. (Patel the successor, for his part, is also seen as an inflation hawk.) Rajan’s time at the central bank also coincided with a golden period for India’s resource-poor economy, which has benefited from a now-years-long slump in global oil prices. The IMF tips domestic economic output to expand by 7.5% this year and next, making India the world’s fastest growing major economy.
The outgoing RBI chief also became something of a spokesman for the emerging world, castigating developed nations for obsessively maintaining ultra-low, growth-sapping interest rates. Often the most persuasive voice in the room, he raised that issue again days before leaving office at a time when central banks, some now shorn of the option of quantitative easing, are casting around for new ways to foment new sources of economic growth.
He wasn’t to everyone’s taste. Some came to believe that he left his post early in part because he fell out with the prime minister, Narendra Modi.
Firm and blunt and imposingly tall, Rajan was certainly a prominent figure both at home and abroad, perhaps as visible and respected among the wider Indian public as the prickly and enigmatic premier. Rajan’s governing Bharatiya Janata party often grumbled that he choked off business by keeping interest rates high; one BJP lawmaker infamously accused him of being “mentally not fully Indian” because he held a US green card.
Others had high hopes that Rajan would achieve what no one else had: find a way to clean up the country’s army of rotten, loss-making, debt-laden state banks. In the end, lawmakers in Delhi, needing to preserve their political capital, found themselves faced with a choice. Either clean up the banking sector through the injection of state capital or focus their attentions on introducing a federal goods and services tax, which would boost coffers and generate capital for much-needed infrastructure projects. The government, a little reluctantly, chose the latter option. To the now-departed Rajan, it was a box left unticked.