Raghuram Rajan: Will He Change the Future of India | RBI Latest News

Raghuram_Rajan - the new RBI Governor Of India 2013

Raghuram_Rajan – the new RBI Governor Of India 2013

Raghuram Rajan, a professor at the University of Chicago’s Booth School of Business, has assumed charge as the 23rd Governor of the Reserve Bank of India on 4th September 2013. He was born in 1963 to a Tamil Indian Foreign Service Officer in Bhopal. He moved from United States to India a little over a year ago when Prime Minister Manmohan Singh appointed him as Chief Economic Advisor to the Government of India.

He has served as the Chief Economist at the International Monetary Fund between 2003 and 2007. Mr. Rajan has already one oracular crisis prediction to his credit when he in his paper titled “Has Financial Development Made The World Riskier?” forecasted in 2005 of the global financial crisis of 2008. He predicted that, “the sophisticated new generation financial products would hurt the US economy as long as traders and bankers didn’t have to suffer the consequences of their losses”.

Primary Problems Of indian Economy According to Rajan’s View

India’s present primary problem is a huge fiscal deficit something similar that US has faced few years back. But the intrinsic strength of US economy allowed some rooms to take necessary drastic steps; unfortunately Indian economy is too young for such measures. The debt of Indian government has reached 66% of GDP—a dreadfully higher than other countries in its class and moreover, none of them come closer to India. For example, it is 24% of GDP for Indonesia, 43% for Turkey and 43% for Philippines. It is a fact that India’s central bank does not have the ability to influence the entire economy by itself. Nevertheless, India really needs a crisis manager at the seat of RBI Governor because India is struggling unsuccessfully to plot the right economic path.

  • The youngest RBI governor, Raghuram Rajan, struck the right tone in his inaugural speech when he announced that he would sustain confidence in the value of the money, improve financial inclusion and award the long-pending bank licenses by January 2014. The well-run banks will no longer need licensing permission to open further banks. He introduced a plan of currency swap that will lessen the pressure on India’s foreign exchange reserve and expected to boost dollar inflows. A formation panel will announce reformatory recommendations on monetary policy within next three months.

 

  • He is a good public speaker and his maiden speech has evoked a positive response from markets. Nifty surpassed 5,600 and Sensex crossed 19,000; PSU Bank stocks moved upward and rupee bounced back to Rs 65 from its historic low of almost Rs. 69.

 

  • This ‘September’ is going to be an action packed month with a variety of global geopolitical issues. The tensions over Syria, US debt ceiling, Federal Open Market Committee (FOMC) policy meeting, political situations in Italy, German elections, RBI policy review, insufficient tax collections ,oil prices jumping on geopolitics, the rupee still weak, debatable food security bill are some of the key events to watch out for. Food security bill will subsidize food grains for 75% of India’s rural population and 50% of the country’s urban population– a great cost to the already-indebted government. Rajan’s earlier experience as the Chief Economist at the IMF might be helpful under the present situation provided he receives adequate support from his previous boss- Finance Minister P. Chidambaram in New Delhi. It is also a fact that he has very little independence in his new job. Some of the biggest problems antagonizing Indian economy are beyond his control. He has no role to play on any of the major issues like trade and government budget deficits or infrastructure development or controlling oil price that is fuelling inflation in the country.

 

  • He has confessed that “this is not an easy time and the economy is facing challenges. In spite of that, Indian economy fundamentally sound economy with a bright future. We have to build a bridge to the future, over the stormy waves produced by global financial markets. I have every confidence we will succeed in doing that.”

 

  • He has hinted a big initial package. He also said, besides preserving the power of Indian rupee, the central bank has mandate for comprehensive growth and development program with emphasis on rural areas and small and medium enterprises across the country. The scheduled commercial banks will be able to work more competitively as no longer they have to approach the Reserve Bank to open a new branch. They have to fulfill certain inclusion criteria in proportion to their expansion in urban area and underserved areas.

Rajan’s Profile

Born: February 3, 1963 (age 50), Bhopal
Spouse: Radhika Rajan
Nationality: American, Indian
Education: Massachusetts Institute of Technology, Indian Institute of Management Ahmedabad, Indian Institute of Technology Delhi
Awards: Financial Times and Goldman Sachs Business Book of the Year Award. (source: wikipedia)

Mr. Raghuram Rajan earned his bachelor’s degree in Electrical Engineering from Indian Institute of Technology, Delhi, before pursuing his MBA in 1987 from the Indian Institute of Management, Ahmedabad, followed by a PhD in 1991 from Massachusetts Institute of Technology.  His immediate task is to deal with the worst financial crisis of India since 1991. Mr. Rajan has remained closer to Indian policy making for last couple of years since 2007. He was an informal adviser to Manmohan Singh who used to speak occasionally send regular notes on global crisis. For the last one year he has been the government’s Chief Economic Adviser.

Rajan in his works published in 2012 wrote that the main causes of economic crises in the U.S and Europe in the 2008-12 periods were workforce competitiveness in the globalization era that the politicians concealed with easy credit. He argued that the governments need to address the underlying causes rather than repeating artificially inflated GDP number. Economic growth can be created by lowering the barriers of producers who supply goods and services. The suppliers should be encouraged with reducing tax rates with greater flexibility in regulations. The states should educate, retrain workers who are falling behind, encourage innovation and entrepreneurship with support of financial sector. Unnecessary, unproductive jobs should be eliminated and government’s presence in a number of areas should be reduced.

He is only on one week on his new job. May be we have to wait many more weeks or many more years before we really see what he is made of.

Image: commons.wikimedia.org

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Sandra
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