R-EXIT

With the appointment of Urjit Patel as the new governor of India’s Federal Bank the Reserve Bank of India; I deemed this to be the now or never moment to answer the question posed by a Non-Indian friend. So here it goes.
RBI is the chief monetary institute of India. It has total executive control on the financial aspect of the country. And the governor of this prestigious institution monitors the money flow within the country using many measures such as CRR, SLR etc.
The current hot topics in Indian Economy are,

1. Impact of Brexit

2. Make in India

3. Digital and Skill India

4. R-Exit
R-Exit is the acronym for Raghuram Rajan’s exit. Raghuram Rajan declared that he wouldn’t continue his tenure for another term.
There are various controversies and a lot of theories regarding this.
First, as every citizen knows there was a lot accusations by the ruling party NDA’s Spokesperson, an economist himself Dr. Subramanyam Swamy. Swamy accused Raghuram Rajan of destroying the economy and being an anti-nationalist.
Second is the conflict of  interest. Raghuram Rajan is credited for bringing inflation to an all time low. The basics of economics is, low inflation leads to high unemployment and high inflation leads to low unemployment. There are draw backs in both the scenarios. When inflation is low prices of goods and services are low but you don’t have jobs. When there is low unemployment you have money but the prices of goods and services is at an all time high, thus your real income is actually low. Raghuram Rajan increased SLR and CRR and created deficit credit. Banks were not able to provide loans and could not introduce money to the national flow. During this time the NDA government came up with “Make in India” campaign. That aims to provide employment, boost secondary sector and increase production. This requires money flow. Hence there is conflict of interest.
Third, the RBI works alongside Finance Ministry of India. Tifts between Raghuram Rajan and Arun Jaitley could be seen quite evidently. Raghuram Rajan tried to make RBI more autonomous and have more power but it needed the nod of Arun Jaitley and his ministry. But Mr. Jaitley played hooky. When the Finance Ministry tried to set up independent debt management committee or when it tried to transfer regulatory power of bond market to SEBI (An autonomous institution set up by the centre to monitor and regulate the stock market) the RBI protested.
Thus, the regime of a great governor Raghuram Rajan had a few line ups in the end but under his stewardship the RBI was able to curb inflation to an all time low.
But on the sunny side, Urjit Patel aged 53 will be the youngest governor. He’s an incredibly qualified person with an MPhil from Oxford and PhD from Yale. He headed the committee that worked on reducing inflation. And moreover he’s an eminent economist under Arun Jaitley’s eyes too; which is a good thing because as history taught us it’s better if the Ministry and RBI work hand in hand.
(PS- This is the opinion of the author. There are multiple opinions on this matter and any suggestions or other theories are open for reception) 
Ciao! 😁

 

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