June 20, 2016

Raghuram Rajan's Going is Not the End of the World

Shankkar Aiyar, Visiting Fellow, IDFC Institute writes in First Post that the impact of the exit of Reserve Bank of India Governor Raghuram Rajan has been exaggerated.


Excerpts below:


"Someday someone somewhere in or out of government will put together a manual on “How Not to Do Things”.  And R3XIT, the exit of Raghuram Rajan from RBI, will find a place in it. Sure there were differences — ministers had petitioned for his ouster. Yes, there was much grief about Rajan’s utterances — the one about the one-eyed king apparently being the tipping point. The cause list though doesn’t mitigate the consequence — it doesn’t take away from the fact the orchestration of R3XIT was ugly and avoidable... A popular thesis bandied about suggests that investors and millions of dollars will flee in the wake of Rajan’s exit... Another theory suggests that crony capitalists have engineered the ouster. Even if one buys into the argument the question is how does his ouster help. There is the process that precedes and follows declaration of NPAs. Can the new incumbent enable its circumvention? Timing is often the critical factor in politics, in economics and of course in markets. The worst facet of R3XIT is the timing."

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