There were several significant statements from IMF chief Christine Lagarde at her public meeting in the RBI headquarters in Mumbai. Yet, nothing was more interesting than her wholesome praise of Governor Raghuram Rajan for “deftly steering” the economy to safer waters after what she termed the “taper tantrum” of 2013. She went on to concede that ignoring Rajan’s prediction in 2005 of the impending credit crisis was a big mistake, adding, “But we do now pay attention to anything that Raghu says.”

The praise is well deserved. Yet, the temptation to look at the comments in the context of rumours of simmering tension between the RBI and North Block refuses to go away. Lagarde may just have made it that much more difficult for the government to move Rajan out of the RBI, if it was indeed considering that. Remember, Rajan’s name is on the shortlist of likely candidates to head the Brics Bank. Speculation has been rife that Rajan will be nominated to this “prestigious” post leaving the field open for the government to appoint its own person at the helm of the RBI. Though with two rate cuts in two months Rajan may appear to have called a truce, the undercurrents persist.

The attempts by the government to clip the central bank’s wings and Rajan’s determination to zealously protect the RBI’s turf from encroachment reflect the tension. Such tensions are not new, but the circumstances are different. There is tremendous uncertainty ahead in the global economy and we need a steady and experienced hand controlling the RBI. “Raghu” comes from a different stock unlike his immediate predecessors who had been bureaucrats earlier, and he commands respect among central bankers globally. Disturbing him from the RBI will be the worst signal that can go out of India.

Raghuvir Srinivasan, Associate Editor

Related Topics