'Got a bunch of threats...': Raghuram Rajan says certain business interests weren't happy, wanted him out of RBI

In a recent interview with veteran journalist Vir Sanghvi for the digital media platform, The Print, Dr. Raghuram Rajan, former Governor of the Reserve Bank of India (RBI) and now professor at the University of Chicago, provided a candid and comprehensive account of his tenure at the helm of India's central bank. This discussion delved into the challenges he faced, the policies he implemented, and the controversies surrounding his departure. Rajan's responses shed light on the intricacies of his role and the external pressures that influenced his time in office.

The Orchestrated Campaign

From the outset, Rajan acknowledged the orchestrated efforts to discredit him, which were often fueled by selective quotations and sensationalism. "There's a sort of campaign to discredit me and what they do is they take phrases out of context and then push it as hard as they can," he remarked. This trend, he noted, was not new and had been prevalent during his RBI tenure as well. "You know, this has been going on for some time. It went on while I was Governor RBI also," he added, emphasising the persistent nature of these attacks. He advised, "read the whole even interviews as you well know are sort of cut and so as to try and emphasize the new stuff which tends to be sensational."

Tackling Inflation and Facing Threats

Rajan's policy decisions, particularly his focus on inflation control, were pivotal during his time as RBI Governor. He revealed that the initial steps to raise interest rates to curb inflation were met with resistance from influential business figures. "We were initially raising interest rates to bring inflation down, and a bunch of people who had borrowed a lot suddenly started feeling the pinch," he explained. The pushback was intense, he pointed out, with some business people even issuing threats. "I got a bunch of threats from business people saying, you know, you better do it otherwise we'll get you out of your job," he stated.

When Sanghvi asked if these were influential business people, Rajan responded, "sometimes business people have a greater sense of their influence than they actually have." He clarified his stance by saying, "if I succumb to their threats, then I'd be out of a job anyway because I'd be doing my job awfully."

The Banking Sector Cleanup

One of Rajan's significant contributions was the cleanup of the banking sector, which at that point was reeling from inflated loan books and rising rate of NPAs. It involved stringent measures to ensure loan repayments. This move, however, did not sit well with certain business interests, Rajan pointed out. "We started cleaning up the banking sector and forcing people to repay loans, and that too didn't go down well," he noted. These actions, while necessary for the health of the financial system, likely contributed to the opposition he faced.

Political and Business Interests Intersect

When asked if he sensed that the government wanted him out, Rajan's view was more nuanced. "Certain elements clearly were not happy," he admitted. He suggested that business interests, with their political connections, played a role in the pressure for his removal. "Business interests have political connections and those political connections then work in their interest silently or explicitly," he observed.

Vir Sanghvi summarized Rajan's position, stating, "there were business interests who felt they would be adversely affected by the cleanups and the things you were doing and they lobbied to have you removed." Rajan agreed, adding, "there were elements within the ruling dispensation who didn't like it because you stood up for your vision of India which was not their vision of India."

Reflecting on His Tenure

Despite the challenges and the eventual end of his tenure, Rajan remained proud of his contributions to India's economy. "What I did was the right thing for India," he asserted. He highlighted several key achievements, including the banking sector cleanup and the development of the Unified Payments Interface (UPI). "UPI is such a flourishing system now... I feel I played a small part in that," he said. He also expressed satisfaction with the progress of the banks licensed during his tenure, noting, "I see branches on all around and I say, well, that's a bank we gave a license to. I feel happy."

Reflecting on the broader impact of his policies, he stated, "The cleanup we started of the banking system has proceeded to the point where the banks by and large have clean balance sheets and can lend as the nation sort of starts growing." "I feel very confident and proud of the record we established over that time and I think it's helped India over the years since," he added.