Will the economy be impacted on Raghuram Rajan and Nikesh Arora’s exit?

India so far in 2016… 

India’s GDP gained momentum in the final quarter of FY 2015 and pushed full-year growth to a five-year high. GDP grew 7.6% in FY 2015, which was up from 7.2% in the previous fiscal year and reflected substantial growth in private consumption, which accounts for nearly 60% of the economy. According to the Ministry of Finance, the government met its budget deficit target for FY 2015, which was set at the equivalent to 3.9% of GDP. The budget deficit has been shrinking for several years and is expected to shrink further in FY 2016. The government has set a goal to reduce the shortfall to 3.5% of GDP in FY 2016. 

But, with the recent news of the RBI governor Raghuram Rajan and Softbank’s CEO Nikesh Arora calling it quits, will India have a tough time achieving its targets in 2016? 

The morning of 18th of June 2016 was an unpleasant one for most of the Indians and the Indian financial community as Raghuram Rajan decided to quit and continue with what he was previously pursuing, academia. Raghuram Rajan happens to be one of the only two free thinking governors in today’s world. Rajan is no ordinary governor, infact it was Rajan in 2005 who predicted the global financial crisis in 2008-09 but alas nobody paid heed to him. Post his selection as the RBI governor he has taken a lot of measures to fix the monetary policy and has also advocated a new method to calculate inflation. 

Rajan too had his share of luck as he assumed the governor’s seat when the global oil prices were at a record low which in turn helped him curb inflation and keep the rupee strong. But, India is not just going to lose a great Governor; along with him India is also going to lose billions of dollars in investments, foreign exchange say many economists. In order to neutralize this effect the government has introduced certain FDI norms and has eased regulations.

Rajan’s contribution

Rajan, has single handedly brought about changes in banking reforms in an attempt to clean up the mess prevailing in the banking sector one of which is non performing assets. His contributions to India came at a time when the country was at the brink of hyperinflation and there was urgent overhauling required in the

policies of the banks. This fortunately coincided with PM Modi’s dream of changing India and making it a better place to live. The government may have a tough time finding a replacement for Raghuram Rajan. 

From the quitting of the Governor to the quitting of the CEO of Softbank, India is having a rough financial week. 

Nikesh Arora an engineer from IIT, BHU Varanasi recently stepped down from the position of CEO of the biggest bank in Japan, Softbank. Nikesh joined Softbank as COO in October 2014 and quickly climbed up the ladder as he was made the CEO in July 2015 earning the 3rd highest pay package in the world. Softbank so far has invested more than a $10 billion into the Indian startup ecosystem, with its investments ranging from $500 million to $1.5 billion. With Arora’s decision to quit Softbank, the investing spree is likely to be scaled down significantly in India by Softbank. This would result in the Indian startup ecosystem taking a hit as the Softbank has been a keen foreign investor so far. 

The table below gives an account of investment done by Softbank in India, perhaps after Nikesh’s took charge of the company. 

Company

Amount

Date of Investement

Ola Cabs

$500 million

April 2015

Grofers

$120 million

November 2015

InMobi

$5 million

December 2014

Snapdeal

$500 million

August 2015

Oyo Rooms

$100 million

August 2015

Housing.com

$115 million

November 2014

Not only are the startups going to take a hit but also other projects such the recent solar project which will be carried out in conjunction with Foxconn and Bharti enterprises. At a time when the PM Modi is pushing for FDI and foreign investment, this move comes as a disappointing one for all the Indians. 

With Raghuram Rajan stepping down as the governor and Softbank’s CEO Nikesh Arora calling it quits, the Indian economy is all gearing up to take a hard hit as millions of dollars flow out and there could be a temporary obstruction in the inflow of funds. With Britain voting in favor of Brexit, its harsh influences on India going to give the country a whole new challenge and a crisis to deal with.

The government on the other hand is running from post to post and pillar to pillar finding a suitable replacement for the governor’s chair, let’s hope for the best outcome and our country to greater and higher heights.

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