Longer term for RBI Governor

Apropos of the report “Three-year term short for RBI Governor: Rajan” (FE, July 1), it is interesting that RBI Governor Raghuram Rajan has pitched for a longer tenure for the central bank chief by saying that a three-year term was short and the global practice has to be emulated in India. In response to the Parliament’s Standing Committee’s query whether it should be five years, he cited the case of US Federal Reserve where it is provided that “in addition to serving as members of the board, the chairman and vice-chairman serve terms of four year each and may be reappointed to those roles, who in turn serve until these terms as governors expire”. It may be pointed out that in terms of Section 8(4) of the RBI Act, 1934, which relates to the Composition of the Central Board, and the term of Office of Directors, “the Governor and a Deputy Governor shall hold office for such term not exceeding five years as the Central Government may fix when appointing them, and shall be eligible for re-appointment”. This clearly indicates that the existing term of the Governor of RBI can be ‘up to five years’, subject to the central government’s approval. There is also a provision for their re-appointment. One thus wishes that Rajan had accordingly sought a five-year term instead of referring to the current practice followed by the US Federal Reserve. However, it may also be mentioned that the central government, as per the established practice, appoints RBI Governor initially for a period of three years and any further extension is granted as per its own wisdom and suitability. Perhaps, there is nothing sacrosanct about the concept of the ‘threeyear term’ being currently given by the government instead of granting a full five-year-term to maintain the proper continuity.