Something happened that was contrary to the prime minister’s assurance. It could have been intimation of the finance minister’s unwillingness to give an extension; or some indication of his unfriendliness. The hostility cannot be related to policy, for the finance minister has no pronounced views on monetary policy or any related matter. There has been some difference of opinion on the monetary policy committee. Urjit Patel, deputy governor of Reserve Bank, had originally proposed it two years ago; he meant it to be a committee of Reserve Bank with a couple of outside members of its own choice. The Srikrishna committee wanted government-appointed members to be in majority. The committee as announced in the last budget would have three members from Reserve Bank and three from outside, but it conceded the casting vote to the governor. It may have been a bone of contention between the finance minister and the governor, but was not important enough to account for the early resignation. In any case, the governor seemed to have won that battle. But he lost the war; just how the finance minister managed to defeat him, and over what, is a mystery.
There has been no celebration of the victory; by and large, public opinion has been with Rajan, and regretful over his decision to leave. There may be a tendency to take the news as a tragedy; but it is no great loss. Rajan was never at a loss for ideas of reform; but with a finance minister who is generous with high-sounding, optimistic and generally meaningless statements, Rajan never had a chance of doing anything significant. Whatever went wrong, this is the important consequence: that Rajan was King Log, and the frogs had lost all fear of him. His going returns us to the routine regime: Delhi will send a docile civil servant as governor, he will make deadly dull statements every quarter, and he will do nothing. We may even see the first female governor of Reserve Bank; she will pick up many bouquets, but whether she will say or do anything memorable remains doubtful.
Thus, Rajan’s walkout is non-news that returns Reserve Bank into soporific obscurity. But it is not bad news. For it also returns Rajan to academia; and one great thing about academia is that its members can say anything, however radical and outrageous, and get away with it. Before Rajan was lured by Manmohan Singh into the Indian policy machine, he wrote some thought-provoking books. He often went to academic conferences and, surprisingly, made headlines; he can return to being an academic rockstar. And that is better for the world than his being a central bank governor.
Rajan could also apply the lessons of his governorship to other countries. International Monetary Fund would be very happy to fly him to economies in distress; rescuing them would try his skills a lot more than India, which has no chance of having a crisis in the near future. He would make much bigger news – and learn more – out of repairing the economies of China, Brazil or even South Africa than he would ever have in India. So his career is likely to brighten up.
But I do hope he will not get too busy, for there is one thing he should take time out for, namely, write a book about India. It would be great if he told us in his own words about what went wrong between him and India; the more frankly he does it, the better. But even if he does not indulge in luminous candour, even if he keeps the J-word out of it, his very style will make it riveting reading; in fact, the more he shrouds the shocking real events in civility, the better it will read. And who knows, he may throw out some good ideas about how to reform our economy. There may not be much chance of doing so under the present regime. But regimes come and go; ideas live on – until proved wrong.