rexit not brexit is the real problem

In Rajan’s carefully worded resignation letter, he made it clear that he would rather have stayed on to serve another term. He decided against it, he wrote, “after consultation with the government” — implying that New Delhi wanted him out, or at least hadn’t done enough to encourage him to stay.

Rajan’s battles against cronyism were far from the only actions as acting central bank governor that won him enemies. Some criticized him for holding interest rates too high for too long, and others disliked his habit of straying outside the narrow inflation-focused monetary policy remit traditionally followed by Indian central bank governors. Allies of Modi’s BJP also bristled at his wide-ranging speeches, in which he would pour cold water over recent “euphoria” about India’s future growth prospects, or praise social tolerance — both of which some saw as veiled criticisms of Modi’s government.

...Mr Modi’s willingness to cut loose such a respected figure will prompt investors to take a closer look at his administration, particularly the degree to which rhetoric about transforming India’s economy is matched with action. The chief Asia economist of a western investment bank says: “It reflects on the government. Somebody who is competent, perceived well, and has done a good job — what could possibly be the reason for not giving him an extension?”

Some political analysts in India suspect the prime minister viewed Mr Rajan’s global profile as competition to his own, rather than as an asset that bolstered his government’s credibility. Mr Rajan was also criticised by some industry groups for his initial hawkish stance on inflation as they clamoured for lower interest rates, though he has since cut rates by 150 basis points.

Perhaps most crucially, he antagonised some powerful Indian business groups with his denunciation of crony capitalism, and the pressure he put on state banks to get tough with stressed borrowers long accustomed to pliant state banks sweeping their problems under the carpet.

The New Delhi-based analyst says: “He has clearly made some people unhappy in the right wing of the BJP, but that’s just a cover — always look for an economic reason. There are big industrial groups who have been hurt by his policies — not on interest rates, but on cleaning up the banks, and cleaning up the people who have caused the non-performing assets at the banks.”