A reformist-economist to play central banker

The appointment of Chief Economic Advisor >Raghuram G. Rajan as the next Reserve Bank of India Governor after D. Subbarao completes his tenure on September 4 has been hailed by one and all, particularly India Inc. which has been at the receiving end of the perceived hawkish policy pursued so far by the central bank. Prime Minister’s Economic Advisory Council Chairman C. Rangarajan has also lauded Dr. Rajan’s selection as an ‘excellent’ choice.

And, not without reason. Dr. Rajan, who was Economic Advisor to Prime Minister Manmohan Singh in an honorary capacity and took over as CEA in the Finance Ministry in August last year, is known throughout the world for his forthright and frank views. Widely acclaimed — through initially criticised — for accurately predicting the global meltdown of 2008, Dr. Rajan had foreseen as early as in 2005 that a crisis in the financial sector was looming large.

An alumni of IIM Ahmedabad and IIT Delhi, Dr. Rajan, born in 1963 in Bhopal, went on to complete his doctorate from the Massachusetts Institute of Technology and was professor at the University of Chicago’s Booth School of Business before taking over as CEA. During his short stint as CEA, Dr. Rajan was also actively engaged in authoring the report on financial sector reforms that was commissioned by the Planning Commission.

Wealth of experience

In fact, Dr. Rajan is one among very few Indian economists who risked criticizing the U.S. financial system at the prime of his career and warned against the potential catastrophes. Having gained a wealth of experience and broad and analytic perspective on how systems work, he came up with controversial papers chaffing the finance sector. After an initial few brickbats, his views and implications on the flaws of the financial sector were later noticed when he managed to prove himself as right.

Savour this. On why stimulus has failed, Dr. Rajan, in one of his columns said: “Advanced countries will spend decades working off high public debt loads while their central banks will have to unwind bloated balance sheets and back off from promises of support that markets have come to rely on.’’

On the role of central banks, he said, in another write-up: “Quantitative easing has truly been a step in the dark. Given all the uncertainty, why have central bankers, for whom ‘innovative’ is actually an epithet, departed from their usual conservatism in adopting it?’

Back home, on why India slowed down, Dr. Rajan said: “To revive growth in the short run, India must improve supply, which means shifting from consumption to investment. It must do so by creating new, transparent institutions and processes, which would limit adverse political reaction.”

The best person

Welcoming his appointment, Dr. Rangarajan, a former RBI Governor himself, said: “Rajan will make an excellent Governor at the moment” as he has been dealing with the problems in the last one year. Planning Commission Deputy Chairman Montek Singh Ahluwalia also noted that Dr. Rajan is coming in at a tough time but he has a terrific academic and professional background.

“It’s a very tough time, we need someone who can give direction...the important thing is giving leadership for the next five years on how should the Indian financial system move. I think Rajan will be the best person to do that,” he said.

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Printable version | Sep 22, 2020 10:52:48 AM |

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