The finance ministry’s chief economic adviser Raghuram Rajan moves into the Reserve Bank in pretty much the same rocky terrain for the Indian and global economy,as predecessor D Subbarao did.
Rajan,however,brings in addition a strong ability to communicate,born out of a career teaching economics which will come in handy. Just sample this: “Central bankers,nowadays,enjoy the popularity of rock stars,and deservedly so: their response to the difficult and uncertain environment during and after the financial crisis has been largely impeccable,” he wrote in an article authored through Project Syndicate in 2012.
While Subbarao,a career bureaucrat,was appointed as RBI Governor in September 4,2008 just days before the Lehman crisis,Rajan is joining the central bank at a time when the Indian economy is besieged by lagging growth,a huge current account deficit and a volatile currency.
As befits a communicator,Rajan favours a collaborative approach in monetary policy. He wants the central banks to talk to each other more and he wants the RBI to adopt an open model to set interest rates.
“He is an excellent choice for the RBI governorship. While his immediate priority will be to decrease volatility in the forex market and stabilise the rupee,in the long term he will have to work on price stability and stimulating growth,” said C Rangarajan,chairman of the Prime Minister’s Economic Advisory Council and a former RBI governor.
Deepak Parekh,chairman,HDFC adds,”He is a person of huge international stature and will definitely bring a lot of expertise and make a difference. He is likely to think out of the box and bring in new thoughts to the central bank.”
Rajan takes charge as the RBI Governor after Subbarao’s term ends on September 4. His views are likely to be reflected in the mid-quarter review of the monetary policy on September 18,which will be the first such exercise he undertakes after taking charge.
But even before that he will be expected to begin to break down some of the silos which have surrounded the Bank and even the finance ministry and which is negatively impacting the financial sector in a big way.
“The choppy relations between the RBI and the finance ministry over the past few months have also had some impact on markets. If the two speak in the same voice or at least seem on the same page,it would surely assure the markets,” said a senior official.
Over to the new Governor.
Financial markets are,at present,in extremely healthy shape. Yet it is at such times that excesses typically build up. One source of concern is housing prices that are at elevated levels around the globe. While the techniques and instruments to absorb fluctuations have improved,there is uncertainty about how they will perform in a serious downturn. The Greenspan Era: Lessons for the Future; Rajan as Economic Councilor,IMF,on
August 27,2005,Jackson Hole.
The Asian financial crisis is etched in the minds of Indian commentators. Yet the primary lesson of the Asian financial crisis is not that foreign capital or financial markets are destabilising,but that poor governance,poor risk management… make an economic system prone to crisis. Financial sector reform can reduce these vulnerabilities substantially.
A Hundred Small Steps,2008: Report of the High Level
Committee on Financial Sector Reforms chaired by Rajan.
…instead of redressing the balance between the poor and the rich,between the disconnected and the well connected,between the powerless and the powerful,the Indian state,despite all its socialist rhetoric,often ends up discriminating against the former and in favour of the latter. The government… has the bicyclists mentality of bowing on top and kicking below. Fault Lines; How Hidden Fractures Still Threaten the World Economy,written by Rajan.
Policymakers are usually attentive to short-run economic management issues. But the short run has to be a bridge to the long run. The central long-run question facing India is where will good jobs come from? Productive jobs are vital for growth. And a good job is the best form of inclusion. Economic Survey 2012-13,Rajan as chief economic
adviser to the finance ministry.