Will the resignation of India's central bank governor weigh down on confidence?

Debate was set into action over the weekend when Central Bank of India governor Raghuram Rajan released a statement to his staff saying he would not be staying past the end of his first three year term that ends in September.  The move left investors wondering over who will possibly replace the former Chicago University professor who has been hailed as a beacon of light in a world of central bankers grappling to arrest rapid economic deterioration.

Rajan put to bed rumours of his unhappiness by indicating his reasons for leaving were based on his fallout out with government officials most notably after receiving a backlash of criticism from members of Narendra Modi's Bharatiya Janata Party (BJP) who called into question Rajan's true identity as an Indian citizen pointing to the fact he continues to hold a US Green Card and frequently visits the country to keep his residence active.

Although they conceded that Rajan's policy of high interest rates did attract much needed foreign investment as well as contained inflation that had gotten out of control, it also placed pressure on small businesses who aren't able to service debt with high levels of interest payments.

Yet between blurred lines it seemingly looks evident that Rajan's resolute promise to shape up Indian banks was the real reason to have him pushed out the job. The Central Bank of India set a deadline for banking institutions to "clean up"their balance sheets by making provisions for bad loans of which the most affected being stated-owned banks.

Rupee falls after RBI Rajan's surprise move to quit in September https://t.co/POpVu4Aj6m by @neha_5 and @Suvadc #Rexit #Rajan

— Reuters India (@ReutersIndia) June 20, 2016

The words "stated owned" says it all if we were to assess the success of bureaucratic administration of strategic organisations by government who find the convenience of using such enterprise as a means of political payback in terms of employment for loyal friends than meeting the true objectives.

At the end of last year I penned a piece highlighting the potential economic prosperity that beckoned for India with the promises of newly installed prime minister Narendra Modi who offered a lot if he could prove successful in passing through the reforms needed to elevate India's growth engine relative to its Asian counterparts China.

However as the clouds of doubt draw nearer this latest development delve's a heavy blow on Modi's aspirations whose government is increasingly foreshadowing previous regime's who instituted the same control measures to serve their own selfish ways.

The independence of a nation's central bank cannot be stressed enough when comparing the calamitous situation advanced economies find themselves in due to the lack of proper government policy aimed at correcting economic damage whilst opting to utilise the tools of "free money" to artificially hide the cracks of failure and then listening to the voice of reason from a policy maker such as Raghuram Rajan who couldn't be swayed to push a political party line by remaining unbiased in talking the truths that may at times been inconvenient yet needed to be heard and fixed.

It is indeed a sad day for proponents of monetary economics who've lost a champion of reason and replaced with a never ending trend of government meddled interference.