By Ananya Biswas

The official announcement of Raghuram Rajan’s decision to quit as RBI governor has sparked strong reactions amongst the public and imminent industrialists. The timing of this move adds to the ongoing woes relating to the uncertainty of Britain’s exit from the European Union, unstable oil prices and delayed monsoons. There is a high possibility of this news adversely affecting the Indian rupee in the near term. His exit leaves the government with a herculean task of finding a new governor who is equally competent, sharp and pragmatic about reforming the Indian economy.

The recent letter addressed by Mr. Rajan to the RBI highlights all the reforms that have been brought about by the Governor and also veiled hints about the government’s reluctance to accept his second tenure. Mentioned below are few comparative measures which reflect the commendable work done by Mr. Rajan for the growth of the Indian economy (2013-2016 being the tenure):

Economy measures 2013 2016
Forex reserves 277,722.2 million dollars 338,979.3 million dollars
CAD as % of GDP 1.7% 1.1%
Inflation 10.92% 5.7 %


Economic reforms

Banking reforms

  •  Stabilizing the rupee which had plunged to an all-time low of 69 against the dollar in 2013 owing to stiff economic challenges and global volatility
  • Groundwork for on-tap bank licensing and licensing of differentiated banking entities to create a more diverse banking sector (Payment banks and NBFC’s)
  • New monetary framework focussing mainly on inflation targeting and changing the indicator from wholesale price index to retail inflation
  • Bringing in a universal payment interface which would play a major role in achieving the goals of universal electronic payments, cashless transactions and financial inclusion.
  • RBI cutting interest rates by 150 basis points thereby boosting liquidity in the market.
  • Sustainable structuring of stressed assets to address asset quality challenges at banks through Asset Quality Review.
  • Reduction of min daily maintenance CRR from 95% to 90% and narrowing the LAF corridor to 50 basis points.
  • Use of MCLR to decide lending rates by commercial banks so as to improve the monetary transmission mechanism.

All these reforms stabilized the banking industry which was in a vulnerable state. We hope our government selects a suitable candidate who can fill Mr. Rajan’s shoes. He / She must make sure that they maintain proper financial and price stability in the Indian economy which in turn will lead to a brighter future.

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