MUMBAI—Foes of Indian central bank Gov. Raghuram Rajan—who said over the weekend that he would step down at the end of his current term in September—cheered his departure Sunday, despite predictions from investors that it could rattle markets.
In a letter posted on the Reserve Bank of India website on Saturday, Mr. Rajan, former chief economist of the International Monetary Fund, said he had been open to staying in his job, but that after "consultations with the government" had decided to return to academia.
Investors will be watching closely to see who Prime Minister Narendra Modi chooses as a successor and whether the decision to let go of Mr. Rajan is a harbinger of a shift toward a less liberal stance on economic policies by an administration that has sought to boost growth.
Mr. Rajan's exit "will add a new dimension of uncertainty" to Indian markets, said Praveen Jagwani, chief executive of money manager UTI International (Singapore) Pvt. Ltd. "Global investors could get irrationally spooked by his exit."
The 53-year-old Mr. Rajan, who had spent much of his career at the University of Chicago before joining the Indian government as an adviser in 2012, won plaudits from economists for boosting the independence of the central bank and focusing on curbing India's chronically high inflation.
But those same traits at times put him at odds with some members of Mr. Modi's Bharatiya Janata Party, which has deep roots in Hindu nationalism, who questioned his patriotism and lambasted him for not moving more quickly to cut interest rates.
A tweet from one of Mr. Rajan's most outspoken critics, Subramanian Swamy, a BJP member of parliament, said of Mr. Rajan: "Whatever fig leaf he wants for hiding the reality we should not grudge it. Say goodbye!”
Mr. Swamy, who has accused Mr. Rajan of attempting "to wreck the Indian economy," said Mr. Rajan's leaving was a credit to Mr. Modi. "Media, industrialists, and international bureaucrats piled on him for" Mr. Rajan "but he did not bend,” Mr. Swamy tweeted.
Another prominent Hindu-nationalist voice, S. Gurumurthy, who has campaigned for Indian economic self-sufficiency, tweeted: "Nothing personal against Rajan. Only point is he knows very little re India. He's a Global Indian."
Such rhetoric underscores the friction within the BJP and the broader Hindu-nationalist movement between a wing that supports more orthodox, liberal economic policies and those with deeper suspicions of markets and capitalism who have a more protectionist bent.
"This reflects a broad sense of unease about Mr. Rajan" in Mr. Modi's party, said T.T. Ram Mohan, who teaches finance at the Indian Institute of Management in Ahmedabad. "They feel they need to take a fresh look at what's been done."
Mr. Modi has retreated from some federal initiatives, such as revamping labor laws and making land acquisition for development easier, in the face of opposition internally and externally, BJP politicians say.
In an interview with The Wall Street Journal last month, Mr. Modi, when asked if he would reappoint Mr. Rajan, responded: "I don't think this administrative subject can be an issue for the media. And that issue is only in September, not now."
Mr. Rajan's often analytical view of the state of the Indian economy and his assessments of government policies at times seemed out of step with the government's efforts to tout its successes.
"The BJP now wants someone who is more cohesively with the government, because they have a limited window of opportunity to do what they promised," said Harsh Pant, a South Asia specialist at King's College in London.
India is now the fastest-growing major economy in the world, since a revision in the way it calculates its gross domestic product, and Mr. Modi and other national leaders cite that ranking repeatedly in speeches at home and abroad.
In April, Mr. Rajan said that despite the apparently rapid expansion, India's economy was still recovering, and that he saw little room for self-congratulation.
"I think we have still to get to a place where we feel satisfied. We have this saying—'In the land of the blind, the one-eyed man is king.' We are a little bit that way," Mr. Rajan said.
Foreign Trade Minister Nirmala Sitaram criticized the governor's choice of words and Finance Minister Arun Jaitley said India's growth rate called for "a celebration."
Mr. Rajan later said he meant that India's performance was happening at a time of global weakness. "We cannot get carried away by our own superior growth rate," he said.
The governor has also sounded a note of caution on other major government initiatives.
In December 2014, a few weeks after the launch of Mr. Modi's "Make in India" program aimed at developing manufacturing, Mr. Rajan said an export-led growth strategy might not work as well for India as it did for other Asian economies such as China.
Due to the tepid global economic recovery, especially in industrial countries, he said, Indian companies might want to focus on making for India.
When the government touted the opening of a record number of bank accounts for poor people in a major financial-inclusion program, Mr. Rajan cautioned against calling it an easy victory.
"We have to make sure it does not go off the track," Mr. Rajan said. "The target is universality, not just speed and numbers."
He also used his bully pulpit to call for tolerance and an open exchange of ideas at a time when Prime Minister Modi's administration was facing criticism on those fronts from political opponents.
Mr. Rajan's critics questioned whether he was Indian enough.
"He is in this country on a Green Card provided by the U.S. government and therefore mentally not fully Indian," Mr. Swamy wrote in a letter to Mr. Modi in May. Mr. Swamy said Mr. Rajan's policy decisions had led to "the collapse of industry and rise of unemployment."
The governor also irked other powerful interests in India.
His plan to force banks to come clean about the extent of nonperforming loans on their books has put some of India's largest conglomerates under pressure to keep up with debt payment.
"It's a big victory for the crony capitalists, unless the government appoints someone with immense credibility as next RBI governor," said Rahul Bhasin, managing partner of money manager Baring Equity Partners (India) Pvt.
—Shefali Anand contributed to this article.
Write to Gabriele Parussini at gabriele.parussini@wsj.com
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