Uday Kotak supports Raghuram Rajan; suggests insulation of governor from politics

Nirmala Sitharaman, Minister of State for the Ministry of Commerce & Industry supported Subramanian Swamy's criticism of RBI governor Raghuram Rajan. She said Swamy is right in unearthing the flaws and Rajan's policies need to be revisited as they have adversely affected the small and medium industry.

On the other hand, Uday Kotak, Vice Chairman Kotak Mahindra Bank, backed Rajan saying the Central Bank and its governor should be insulated from politics.

"The RBI (governor's) position should be apolitical fundamentally," the promoter of Kotak Mahindra BankBSE -0.72 % , India's second most valuable private sector bank by market value, told Economic Times. "One of the things that has served India well is an independent RBI. We have to keep politics out and keep RBI independent."

Subramanian Swamy ignited a political row with major implications for India's monetary policy and market stability last week by saying that Rajan should be sacked.

Ranjan has cut rates by 150 basis points since January 2015 but banks have been reluctant to pass on all the rate cuts due to massive losses of non-performing loans. Swamy accused Rajan of sinking the economy and criticised him for trying to control inflation with a tight money policy. Critics, including many businessmen, have said he should have cut rates faster.

Kotak defended the Reserve Bank of India and Rajan's interest rate policy saying he has an inflation mandate from the government and sounded doubtful about the pace of future cuts.

"If oil is at $50 per barrel, probably the base effect will start hurting on the inflation side and now RBI has been mandated by the government for an inflation range which is enshrined," he said.

Also, an Economic Times poll of top CEOs also found overwhelming support for the governor.

"Today there is a lot of fear amongst businesses. I am not saying that you support every businessman," he said. "But not supporting businessmen is different from wanting to support business and that's where I link it back to the crucial government agenda, which is jobs."

While there were some bad apples, industrialists who aren't guilty of wrongdoing shouldn't have to fear crackdowns, he said. "Yes, a lot of businessmen have done wrong things. But people who have not are (also) fearing ghosts. I am a big believer that the government should be pro-business and not pro businessmen," he said, as reported by ET.

With the Narendra Modi government completing two years, it should step up the pace, he added. "Now that we are two years at the crease and have time in our hand, go out and encourage businesses to create jobs," he said. "More needs to be done. When you need so many jobs it's never enough."

Earlier, Adi Godrej, Chairman of Godrej Group had also spoken in support of the RBI governor.