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| Raghuram Govind Rajan |
Remember the height of public expectation
when Dr. A P J Abdul Kalam assumed office as the President of India? Though
everybody knew that Kalam was being called upon to perform something that was
not in the direct line of his professional expertise, we the ordinary Indians
rejoiced that an intellectual of international repute was about to assume a
public office of such immense clout. In the end what did Kalam give back to the
people? The inspiration and moral exemplar he provided to the impressionable
minds of the land is undeniable. What else could we expect from an aeronautical
engineer assuming the presidency of a parliamentary democracy whose topmost
seat is mostly titular?
A similar scenario is brewing now, though for
a lesser position, but which tend to assume great significance in light of the
country’s present economic hardships. Dr. Raghuram Govind Rajan is set to step
in as the youngest governor of the Reserve Bank of India on the 4th
of September, when D Subba Rao vacates the post on superannuation. Rajan is noted for many astonishing things
about him. He has no academic background in Economics. He was born in a Tamil
family and had his schooling in India and abroad. He graduated in Electrical
Engineering from IIT, Delhi in 1985 with a gold medal and took PGDBA from IIM,
Ahmadabad. He was awarded PhD in management from the Massachusetts Institute of
Technology and employed as professor at Booth School of Business at the
University of Chicago. Dr Rajan has served as the visiting Professor of the
World Bank, Federal Reserve Board and was the Chief Economist at IMF. He was
invited back to India as an honorary economic adviser in 2008 to the prime
minister and as the Chief Economic Adviser in 2012. His reputation came when
correctly predicted the American economic meltdown of 2008 in 2005 itself. He
began his series of critiques against the prevailing Federal Reserve Policy in
2005 at a function honoring Alan Greenspan, the Chairman of Federal Reserve who
was about to retire from service. Though widely ridiculed at that time, the
world eagerly listened to his words when it came true in exactly the same way
he feared. He is also a member of the group of 30 (G30) an international body
of leading Financiers and academics. Rajan is the author of a few books, of
which I happened to read Fault Lines – How Hidden Fractures Still Threaten the World Economy, two years back and was
greatly impressed by the clarity of thought and required action envisioned in
it. A review may be found in my book review blog.
However Rajan may not find the Governor’s
chair a bed of roses. The economic scenario of the country is bound to cause
some loss of sleep to policy makers before it starts to deny sleep to ordinary
shareholders like us in India’s downward-going share markets. The exodus of
Foreign Institutional Investors are causing bloodbath in the markets on most
days. The currency itself is in dire straits, which have plunged to its
historically lowest levels. Unless the Reserve Bank intervenes in an effective
way, our rupee is going to be a worthless currency. The widening Current
Account Deficit is perplexing financial administrators in the government and
statutory bodies alike. And the common man is biting his nails at the woeful inadequacy
of sustaining measures. Their hope is in Rajan who needs to show his mettle as
an economist. Being basically an engineer, the nation expects quite a few
unconventional but effective initiative from him.
There are some interesting policy decisions
to watch for in the coming months. Raghuram Rajan was instrumental in proposing
an overarching Financial Stability and Development Council (FSDC) was meant to
supervise RBI itself. Bureaucrats at RBI exerted their utmost pressure on the then
Finance Minister, Pranab Mukharjee to dilute the provisions of the idea. We
need to see what Rajan does to his own pet idea. Also, it was Rajan’s suggestion
that RBI should confine itself to
inflation rate targeting and let other authorities to do the task of regulating
banks and the spectrum of activities in which it involves energetically at
present. Again, RBI officials were successful in maintaining the status quo. This
demands a curious watch on how Rajan will go about to implement his own
proposal which would curtail his own powers in the new position.
Once again, we come back to the original
idea. A renowned intellectual is about to ascend to a very responsible job in
the country. The comparison of Rajan with Kalam is natural and hardly to be
missed. Both are Tamils, engineers and men of international renown. Let us wish
Rajan a lot of good luck. He needs it badly now! Really!
