India’s Central Banker Heads Back to Chicago

With Raghuram Rajan gone, investors worry reform will suffer.

1466709269_econ_rajan27 — Photographer: Kunal Patil/Hindustan Times/Getty Images

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By Unni Krishnan, Sandrine Rastello, Luke Kawa, and Peter Coy

June 23, 2016 at 11:00 PM UTC

This article is for subscribers only.

This article is part of the June 27, 2016 issue of businessweek.

Raghuram Rajan said on June 18 he’ll return to the University of Chicago Booth School of Business when his three-year term as governor of the Reserve Bank of India (RBI) expires on Sept. 4. Prime Minister Narendra Modi had failed to defend Rajan strongly when an influential member of Modi’s party said Rajan was “willfully and deliberately wrecking the Indian economy” and was “mentally not fully Indian.”

Rajan raised interest rates three times after being appointed by the previous government in 2013. As inflation eased, he cut rates more slowly than some in Modi’s party wanted. Investors are nervous that India’s next central banker won’t press as hard as Rajan to cut inflation and force banks to clean up their bad loans. “The fact that political pressures may have contributed to his departure” clouds the outlook, Deepali Bhargava, an economist at Credit Suisse, wrote to clients.