Rexit is Modi government's loss and Chicago's gain

Daya Shankar Pandey described the irony and the tragedy of India's brain drain perfectly when he said "Apni chaukhat ka diya giving light to neighbor's house", in Swades: We The People, the 2004 magnum opus by Ashutosh Gowariker. However, 12 years since Mohan returned to his "des" to light his bulb, the "diya" might have another story to tell.

On September 4, 2016, Raghuram Rajan will return to his position as the distinguished service professor of finance at Booth School, University of Chicago, to what he calls "the realm of ideas". How did this happen?

Rajan's tenure at the RBI began in September 2013, when India was counted in the "fragile five". The rupee was depreciating severely, we had runaway double digit inflation and volatile was the new stable for us.

Rajan was then the chief economic advisor to the government of India, but was better known as the man who predicted "the Great Recession".

Just like the hero in a Bollywood film, a lot was expected out of him - and did he deliver!

His first step was the introduction of foreign currency non-resident bonds, which allowed the Indians settled abroad to invest in bonds issued by Indian banks at lucrative rates, helped increase the flow of dollars into the economy, thereby stemming the fall of the rupee.

Next came inflation! For a country like India, where the per capita income is below $5 even today, inflation is a massive problem, since it reduces the purchasing power of the common man. '

Under Rajan, the RBI put in place an inflation-focused monetary framework, setting an inflation target range of 2-6 per cent, an incredibly ambitious leap from the ~11 per cent prevailing in those days.

By increasing interest rates, the RBI nearly halved inflation in three years, bringing prosperity to millions of people.

In between, we saw the formation of niche banks like the small and payments banks, the use of mobile services to send/receive money through mobile phones, the formation of a bureau to appoint the management of the public sector banks, and the accumulation of all-time high foreign currency reserves.

From the "fragile five", India came to being the fastest growing large economy in the world, despite changing domestic and international political and economic climate, an achievement which would have been nearly impossible without the able stewardship of Rajan overseeing the monetary policy.

However, the monetary policy was not all he had to offer to this country. He brought with himself the ability and willingness to embrace truth and reason, even if they painted an unpopular picture.

Be it the Jackson Hole speech in 2005, where he, to everyone's dislike, predicted the financial crisis or be it his criticism of the federal reserve in the US, when they exported their deflationary problems to the emerging markets during the Taper Tantrum, Rajan was never afraid to speak his mind - which explains why some BJP politicians wanted to see his exit.

BJP has a sweeping majority in the political scene in the country and what helps is that whatever little opposition it faces, has lost credibility in the eyes of the public.

Rahul Gandhi has become "pappu" and Arvind Kejriwal is busy finding out where PM Narendra Modi did his graduation from! Rajan was the only credible source of criticism for the government, and many in the BJP have been wary of that.

He had spoken previously of the dangers of populist steps like Make in India as well. Besides, many industries which would benefit from cheaper interest rates, and who would have funded BJP's rise to power in 2014, also wanted more and more rate cuts.

In such a case, the BJP stands to gain the most, if it replaces Rajan with a puppet of its own, although it will hurt India a lot.

"Rexit" has been in news internationally, after the party's Rajya Sabha MP Subramanian Swamy took a position against him, causing the rupee to depreciate against the dollar.

Many business leaders and academics maintained that Rajan is the best central banker of our times and should be reinstated in his position. In the short run, his departure will hurt the credibility of India's banking system, pushing the cost of borrowing for India.

In the long run, there is a danger of the government using a Hindu nationalist for the job, just to have absolute control over interest rates in India.

There are very few Indians who can be said to be the best in the world at what they do and Rajan is one of them. He has been awarded as the best financial economist and the best central banker already.

Rajan will now be in his rightful place, in Chicago, amongst people who respect reason, while some less competent individual takes the helm of our future at the RBI.

This happened because we are used to staying in the dark and are allergic to light.

Perhaps, we don't deserve people who speak the truth or who don't make promises they can't keep. Perhaps if the chaukhat wants darkness, the diya can't do much.