Rajan says ranking of RBI governor should be raised

NEW DELHI/MUMBAI (Reuters) - Reserve Bank of India head Raghuram Rajan urged the government on Saturday to elevate the ranking of the Reserve Bank of India governor, while defending the need to ensure independence of the institution, in his last public speech before his departure.

Rajan said the ranking of the RBI governor, currently at cabinet secretary level, needed to be commensurate with the role - an issue that is believed to have played a part in Rajan's unexpected announcement in June that he would not pursue a second term.

Media reports that a selection panel would consider candidates for governor rather than directly offer Rajan an extension, effectively forcing him to reapply for his own job, had been a deciding factor behind that decision, sources told Reuters in June.

"There is a reason why central bank governors sit at the table along with the finance ministers in G-20 meetings," Rajan said in a speech to university students in New Delhi.

"There may be some virtue in explicitly setting the governor's rank commensurate with her position as the most important technocrat in charge of economic policy in the country."

Rajan also called on the need to ensure the RBI's independence, while saying its role would need to be clearly defined by the government, such as whether it can speak out when it believes the government's fiscal action threatens economic stability.

"How much should the RBI warn on fiscal profligacy, including the building up of contingent liabilities, and when should such warning be seen as interfering in the legitimate decisions of the elected representatives of the people?," Rajan said.

"This is an area where clarity would be useful."

Rajan's term will end on Sunday though the official handover ceremony with his successor, Urjit Patel, will take place on Tuesday.

(Reporting by Mayank Bhardwaj and Rafael Nam; Editing by Robert Birsel)