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Raghuram Rajan: The new RBI governor

Raghuram Rajan: The new RBI governor

Raghuram Rajan: The man who predicted the 2008 global financial crisis

Raghuram Rajan will take over as the next governor just in time for the next mid-quarter policy review on September 18. He will replace D. Subbarao, whose term ends in September. Raghuram Rajan will become the 23rd governor of the Reserve Bank.

After two IAS officers ‘Y V Reddy and Subbarao’ at the helm, the RBI governor’s post now goes to an economist. The other economist to be appointed as governor was Bimal Jalan. One of the youngest governors, Raghuram Rajan shares a common factor with Prime Minister Manmohan Singh, who was also 50-years-old when he became the RBI governor.

After being abroad for most part of his career, it was ‘duty towards the country’ that drew Raghuram Rajan back to India in 2012. He hopes to put ‘India back on the strong-growth path’. Raghuram Rajan, who was a gold medalist in IIT Delhi and IIM Ahmedabad, was featured on Foreign Policy magazine’s Top 100 Global Thinkers list in 2010 and 2012.

raghuram rajan- the new central bank chief

raghuram rajan- the new central bank chief

Rajan, 50, was born in Bhopal on February 3, 1963. He comes from a Tamil family and is married to Radhika, a classmate from IIM. They have two children.

Mr. Rajan has been frequently interacting with the media and investors to convey the message that the government is considering all possible measures to try to stabilize the currency. He has reiterated several times that the rupee’s recent woes are linked to a strengthening in the U.S. dollar as U.S. assets have become more attractive lately. Economists hope that Mr. Rajan’s stint at the finance ministry will ensure better coordination between the government and the Reserve Bank of India, after he takes over as chairman.

Mr. Raghuram Rajan is the author of ‘Fault Lines: How Hidden Fractures Still Threaten the World Economy’ which was published in India in August 2010, in which he argued that American politicians on both sides of the aisle looked the other way as cheap housing credit flowed to people in the middle class, letting them own homes and consume at a level that their earnings would not have allowed.

In 2008, Mr. Raghuram Rajan gave a speech at the Bombay Chamber of Commerce, in which he said that India’s actions in the next few years would determine whether the country would join nations such as South Korea and Taiwan that have made their way from poverty to moderate prosperity in a couple of generations. He warned that the unprecedented growth levels India enjoyed at the start of the 21st century could turn out to be ‘simply a spurt whose underpinnings are unstable.’

Raghuram Rajan wasn’t the only economist who warned of the financial crisis before it struck. He was, however, the sole one brave enough to make this prediction in front of Alan Greenspan at a 2005 Jackson Hole Conference devoted to celebrating the legacy of the once-seemingly infallible Fed chief.

raghuram rajan- the new rbi head

raghuram rajan- the new rbi head

Now, five years on, with growth having fallen to a decade low of 5% and foreign capital fleeing the country, the second scenario appears to be playing out. India can only hope that as head of the central bank, Mr. Rajan is able to turn things round. The economist is likely to do this by offering his support for further liberalization of the economy and privatization of state firms. He is a firm believer that reforms to India’s economy in 1991 that set India on a high-growth path, need to be extended.

Important tasks for the new RBI Head Raghuram Rajan:

  • Raghuram Rajan needs to take firm action to stabilize the currency market and stem the runaway depreciation of the rupee. The local currency hit its lifetime low of 61.81 a dollar on Aug 6th.
  • He needs to roll back the liquidity tightening measures that RBI has taken over the past few weeks to drain liquidity in the system and increase the cost of money. This cannot be done overnight but he should have a plan on his table. It needs to be linked to a firm plan for stemming the fall of the rupee, both monetary and fiscal.
  • After the roll back, there must be a plan to resume monetary easing, depending on the macroeconomic scenario. It’s not easy to take a call on this now, but the lowering of the interest rate is imperative to revive growth.
  • Even though both wholesale price inflation and the so-called core inflation or the non-food, non-oil, manufacturing inflation are low and well within RBI’s comfort zone, retail inflation continues to be very high. That’s a big headache for RBI, and could stay the bank’s hand when it comes to easing monetary policy. Rajan needs to take care of that.
  • Finally, Mr. Rajan needs to rebuild the market’s confidence in the banking regulator. RBI’s actions in the past few weeks and the reaction of the market have make it abundantly clear that the market has no confidence in the central bank.
  • Mr. Rajan’s biggest task will be making the market listen to the regulator.

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Satyadeep Singh
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Satyadeep Singh
Satyadeep Singh

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  1. I think the 4 things Mr. Rahguram rajan has to handle are:
    1.Population – The Private and Public sector Govt.Organisations should form a G.O. that those with more than 2 children will not be eligible for Bonus and Increments in salary for 5 years from anytime during his employment tenure. This is decent and valuable to Mutual Benefit.

    2.Corruption – Indian P.M.says Yesterday, there is no Mechanism to curb Corruption, but it is the ‘Application of Mind’ if applied sincerely, Corruption will be in check which is 50% route cause for the Price rise, Inflation, Terror,Job insecurity and many more.In Other ways like our Ancient Elders’s following’ President to Prime Minister to Ministers, Judges l to General Public that all are equal in front of Law by Making ‘CVC’ Chief Vigilance commissioner as Independent in charge as per Prevention of corruption Act to be selected by Chief Justice of India on 5 years time, as it helps all in order. Spending on corruption should not be more as Rules gives Terror to do.

    3.Price Rise – Corporate’s have done the best thing, to start of the so called reforms along with stock Trading, and this start triggered temptations like Lottery Luck Idea to People and Unexpected cash flow with 110 times subscriptions time to time, so they increased the Price joining in Retail sectors too with Bulk Buying and Hoardings.Unless the stock Market is banned like Lottery to People, Group and Private finance institutions, World war 3 is not far off and this time due to Global stock Market only.

    4.Traffic Jams – There is no Planning in allowing 4 Wheeler manufacturing to sky-level without Limits, by having 30ft, 24 ft, 16 ft Roads near Houses , so imagine the Jams from early Morning to next day of Hardships in Main roads with Beeline and nearhome obstructions to pedestrians too walk in the street with car blocks. For India 2 wheeler only suit as per Roads laid and cars only to hire when in need. Govt. do not bothers, and Industry do not bother and Greed makes the ”Jams of Life”. So some strict measures only makes investing in Roads, Bridges useful or else with this Number of 4 wheeler if not controlled, ‘Proud of owning a car but do not move as Beeline from Home to Roads and vice-versa increase is just spending whole day in car.

    Also,since Fuel Oil companies became independent, State Government to start own crude oil imports and Refineries, and compete with present oil companies and do Profit earnings and savings of costs, and earn good names like Madam.Jayalalitha, Madam.Mamta Banerjee, Madam.Mayawathi as Woman as Finance Minister of India can make a change for benefit of people as they know economy better than Harvard scholars of India, and today RBI says U.P’s GDP rate is equal to Gujarat is a shock to know how press and Media is blocking Women success in Governance.

    Employees should not have Taxable Salary Earning which is a waste, instead Exact Salary as per Taxing Limit, employing more people makes work in speed both in Govt. and Private Level.

    Is is useful ?

  2. G.B.Venkatesha murthy

    Two things are very important for success of any important project or assignment,namely decision making, flow of funds, backed by management support.Being a man from prestigious institution, it should not be difficult for Raghuram Rajan to save the economy of the country from collapse. Wish him every success in his new assignment.

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