A most momentous year for RBI since Independence

This last also put a question mark on whether the RBI knows its math – as several analysts found, the many figures it put out about disbursal of new currency notes simply did not add up. Rajan’s term was due to end in September and the preceding months passed amid speculation about whether his term would be extended, punctuated by attacks on him and his policies in the media voiced by prominent people close to the ruling BJP. 

Rajan himself ended the suspense by announcing he would quit at the end of his three-year term because he had decided to return to academics in the US. It also ended up as being the first time that a government had not extended the tenure of a RBI Governor. 

With India becoming the fastest-growing large economy in a global context of economic slowdown, the pressure on Rajan to cut the RBI’s short-term lending rate to spur growth had become louder and more intense every time the bi-monthly monetary policy review came around. Considering Rajan’s credentials and record, he was the person most suited to the job. 

Beginning with his unexpected rate cut in January 2015, Rajan reduced the RBI repurchase rate by 150 basis points by the time he left office. It is another matter that banks have only transmitted a fraction of what Rajan eased in rates to their customers because of the huge stress on their balance sheets from bad loans. 

When Rajan took charge at RBI in 2013, at a time the US Federal Reserve had declared its intent to wind down its stimulus programme, the rupee plunged in value against the dollar on fears of a spiralling current account deficit. In a series of measures, Rajan managed to stabilise the currency and bring back investors. 

Giving Rajan its Central Banker of the Year award for 2015, British magazine Central Banking said: “His decisive policy actions based on robust analysis and deep understanding of the underlying causes have contributed significantly to changing perceptions about the strength of the Indian economy.”