Andy Mukherjee is a Bloomberg Gadfly columnist covering industrial companies and financial services. He previously was a columnist for Reuters Breakingviews. He has also worked for the Straits Times, ET NOW and Bloomberg News.

The campaign against Reserve Bank of India Governor Raghuram Rajan being reappointed has taken on the appearance of a crude pantomime. That's making rupee investors nervous, and with good reason.

The very suggestion in one newspaper that Rajan might return to academic life once his term expires in September saw India' s currency fall 0.3 percent against the dollar last Wednesday. Bond investors couldn't care less what the governor will say in his monetary policy announcement on Tuesday. All they want to know, as Bloomberg News reported, is whether he's going to stick around.

In the short run, there's one simple reason behind the anxiety. At the height of the Fed taper scare three years ago, India decided to let its banks raise high-cost hard-currency deposits from non-resident Indians to ease a dollar crunch. To persuade lenders to take on a dollar liability when the rupee was in free fall, the central bank allowed them to swap out their currency risk at highly concessionary rates.

Now it's payback time. Including the RBI's $25.8 billion of foreign-exchange short positions, and adding other known principal and interest payments of $4.8 billion, the central bank is staring at a $30.6 billion drawdown of its hard-currency kitty over the next 12 months. At about 9 percent of official currency reserves, the amount isn't small. The saving grace is that as much as $23.7 billion of this requirement is hedged by the central bank's long-dollar forward contracts.

But there's a catch. The RBI's long and short positions aren't exactly aligned.

Rupee Risks Bunch Up
Net short-term drain on India's foreign currency assets may surge starting in August
Source: RBI (International Reserves and Foreign Currency Liquidity Data)
*Reference date: April 30, 2016

Some long-dollar positions are maturing sooner. Unless those are rolled over, there may be a nine-month window, commencing just as Rajan's term ends, in which the monetary authority could see a net $11 billion drawdown.

That's not great news for rupee bulls. Foreign bond investors have pulled more than $1.2 billion out of India this year. And while overseas equity investors have brought in a net $2.5 billion, that's a fraction of their investment in the first half of last year and could quickly dry up if the rupee wobbles.

Those who would like Rajan to pack his bags and retreat to his perch at the University of Chicago have leveled accusations ranging from the scurrilous to the outright sensational: The former IMF chief economist has apparently wrecked the Indian economy with high interest rates; doomed its banking system by forcing lenders to provide for bad loans; not been polite in his choice of words; and, to boot, is an agent of sinister foreign forces.

His opponents should be careful what they wish for. Ever since Rajan took charge at the central bank, currency volatility has been on a declining path -- to a point where traders in India can't stop grumbling about how little there is to do nowadays.

Still Tame
Fluctuations in the rupee's value against the dollar are of a much smaller magnitude than three years ago
Source: Bloomberg

If the governor's departure ends up unleashing speculative forces once again, the hard-won stability of the last three years could be lost. The clownish nature of the "sack Rajan" campaign is confusing investors about the rupee's future direction. The flip-flop of consensus opinion about the likelihood of a U.S. rate increase this summer isn't helping either. With so much anxiety all around, this isn't the time for a risky change.

This column does not necessarily reflect the opinion of Bloomberg LP and its owners.

To contact the author of this story:
Andy Mukherjee in Singapore at

To contact the editor responsible for this story:
Matthew Brooker at