Forget Brexit. Rexit Is The Real Problem.

At his first news conference as head of the Reserve Bank of India (RBI) in 2013, the country’s central bank governor, Raghuram Rajan, remarked that holders of his job rarely became popular. “The governorship of the central bank is not meant to win one votes or Facebook likes,” he said. He was half right. Combining inflation-fighting zeal with a sharp intellect and quiet decency, Rajan went on to become one of India’s most widely admired central bank chiefs — except, that is, among his paymasters in New Delhi.

So when Rajan announced on June 18 his intention to quit the RBI, the financial markets were caught off-guard, prompting renewed worries about the Indian economy — namely that the country’s long-running inflation problems could soon resurface. But in considering Rajan’s departure, there is a more significant concern: that his absence will prove a major setback for his country’s faltering drive against crony capitalism, a high-stakes fight that Rajan had placed at the heart of the central bank’s agenda.

In Rajan’s carefully worded resignation letter, he made it clear that he would rather have stayed on to serve another term. He decided against it, he wrote, “after consultation with the government” — implying that New Delhi wanted him out, or at least hadn’t done enough to encourage him to stay.

The move ended months of speculation about Rajan’s possible departure, a scenario some in India dubbed “Rexit.” Analysts at home and abroad had hoped he would stick around and praised his handling of inflation, opening up of the financial system, and managing problems of bad bank loans and rising corporate debt. (Stressed asset rates at Indian public banks have soared in recent years, hitting 14 percent of all loans in 2015, one of the highest levels of any major economy.)

But by early 2016 in New Delhi, a whispering campaign had begun. Prime Minister Narendra Modi’s center-right Bharatiya Janata Party (BJP) appeared equivocal on his reappointment. A handful of figures linked to the BJP openly attacked his record. In May, the well-known parliamentarian Subramanian Swamy accused Rajan — who worked as an academic at the University of Chicago and chief economist of the International Monetary Fund before returning to his home country in 2012 to serve as chief economic advisor to India’s government — of being “mentally not fully Indian.” In the face of this, Rajan seems to have walked off in frustration, perhaps even before confirming whether he would have been given a second term after all.

Rajan’s battles against cronyism were far from the only actions as acting central bank governor that won him enemies. Some criticized him for holding interest rates too high for too long, and others disliked his habit of straying outside the narrow inflation-focused monetary policy remit traditionally followed by Indian central bank governors. Allies of Modi’s BJP also bristled at his wide-ranging speeches, in which he would pour cold water over recent “euphoria” about India’s future growth prospects, or praise social tolerance — both of which some saw as veiled criticisms of Modi’s government.

Yet in a country whose recent history has been dogged by cronyism and corruption, perhaps his most important enemies came from a curious alliance: India’s reckless public sector bankers and the spendthrift tycoons to whom many of those same bankers had lent money. Both groups agreed that Rajan was focusing with excessive zeal on India’s problems of bad loans and corporate debts. And both groups will be content now that India looks set to revert to a more cautious, low-profile RBI leader.

Any successor is also unlikely to link explicitly, as Rajan did, these banking problems to the much larger problem of cronyism — and most obviously, the often nefarious relationship between the Indian state and many of its largest industrial companies.

Under former Prime Minister Manmohan Singh, whom Modi soundly defeated in May 2014, the country suffered a spate of multibillion-dollar scams. These involved everything from the distribution of mining licenses to the planning of 2012’s Commonwealth Games in New Delhi, and resulted in scandals that badly tarnished India’s reputation. Rajan had highlighted such corruption problems from the start of his term, even going so far as to compare contemporary India to the era of robber baron capitalism during the United States’ Gilded Age.

The heart of this battle against cronyism came through Rajan’s attempts to clean up the mess in India’s banking system. State-dominated lenders — some under political pressure, others because of outright bribery — had lent generously to major businesses. These, in turn, often either invested these funds unwisely or siphoned them off. The result was messy. Friends of Rajan’s noted before his departure that his attempts to fix things had meant taking on powerful interests. “Though it was the right thing, this policy has produced collateral damage: banks’ share prices were affected, and even more affected were those Indian oligarchs who had enjoyed easy credit,” wrote Luigi Zingales, a co-author and colleague of Rajan’s at the University of Chicago.

Rajan’s central role in India’s battle against crony capitalism was made even more prominent by the fact that Modi, who rode to victory promising an end to corruption, has produced a mixed record on graft. Yes, his government has stamped out much of the worst behavior among senior politicians in New Delhi — India has suffered no national-level economic scams since Modi’s election. Modi’s government also managed recently to auction off valuable spectrum and coal licenses, while awarding a series of major rail rolling stock contracts worth $5.6 billion, with barely a whiff of controversy. This suggests that progress toward ending corruption in public procurement and the sale of natural resources is being made — and in two especially problematic areas that Rajan himself repeatedly identified.

Yet in other areas, Modi’s government has barely moved the needle — for instance, in cleaning up institutions like the police, or fixing India’s shady system of political party funding. It also moved relatively slowly on the politically sensitive issue of recognizing bad loans at public sector banks, and then cracking down on the offending industrialists who are unwilling or unable to pay them back.

While Rajan’s anti-cronyism was always somewhat disguised by his mild public manner, he repeatedly ratcheted up regulatory pressures on delinquent lenders and borrowers. And where Modi often appeared reluctant to go after egregiously irresponsible business owners, Rajan seemed less circumspect. In January, for example, he criticized indebted airline and brewing tycoon Vijay Mallya for hosting an opulent 60th birthday party, kick-starting a chain of events that forced Mallya to flee India (in the face of a looming court order barring him from leaving the country) and seek sanctuary in the United Kingdom.

It is hard to know if such moves led directly to Rajan’s departure. The notion that a small number of well-connected tycoons had successfully pressured Modi to sack him seems too conspiratorial. More likely, the government had been dithering about its decision to reappoint him under pressure from various interest groups that were displeased with his record, and that in the end, Rajan simply got fed up.

The risk is twofold. First, Rajan’s successor could push less forcefully to clean up India’s debt mess. Second, and more importantly, there may be less emphasis on introducing tougher rules that could stop this repeating pattern of crony capitalism. Had Rajan been given a second term, it is unlikely that Mallya would have been the only tycoon to be under the spotlight. Either way, the odds are that India’s less reputable public sector bankers, in common with its least scrupulous industrial titans, will now be breathing more than a little easier.

In private, Rajan often said that his plan after the RBI would be a return to academia and the world of ideas. He is now doing so sooner than he would have liked, having discovered that the tenure of central bank leaders can be fleeting. For India and for Modi, the risk is that their claims of ending the scourge of cronyism will turn out to be more fleeting too.

Image Credit: INDRANIL MUKHERJEE/AFP/Getty Images