Star-Rise at RBI

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 4^th 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!