The man who in 2005 warned central bankers of an impending financial crisis has been chosen by the Government to lead its central bank, as it grapples with its own financial crisis.

Raghuram Govind Rajan, now Chief Economic Advisor to the Government and a former chief economist of the International Monetary Fund, was on Tuesday named successor to RBI Governor D. Subbarao.

The announcement came on a day when there was bloodbath in the markets. The Sensex fell by more than 500 points intra-day and recovered marginally to close 449 points or 2.34 per cent down over Monday’s close, slipping below the 19,000-mark. The rupee touched an all-time low of 61.80 to the dollar during the day but recovered smartly after the announcement to end at 60.77, up 11 paise over the previous close.

Unfazed, Rajan, 50, in his first remarks after the news broke, said there was no quick-fix for the country’s economic troubles. Few doubt his ability to deal with them. India’s top government economist since August 2012, Rajan will be the 23rd Governor of RBI — and probably the youngest to hold that office till date.

Subbarao, who demits office on September 4, had indicated to the Government that he was not seeking an extension. By convention, RBI Governors are appointed initially for three years and then given a two-year extension. If this tradition continues, Rajan will reamin at RBI’s helm till 2018.

The immediate challenges before Rajan will be to stabilise the rupee, bring inflation under control, and push growth on to a higher trajectory. The rupee is trading near its historic low, and GDP growth, at 5 per cent last fiscal, is the lowest in a decade.

Rajan said the Government and the Reserve Bank are working together to address these challenges. “We do not have a magic wand to make the problems disappear instantaneously. But I have absolutely no doubt that we will deal with them.”

The central bank’s hawkish stance on inflation has won it few friends in a government desperate to revive growth. But Rajan’s past remarks on inflation have indicated that he is not out of sync with RBI. Rajan said the RBI is a “great institution” with a tradition of “integrity, independence and professionalism.”

IMF’s youngest Economic Counsellor and Director of Research, Rajan was on November 3, 2008, appointed Honorary Economic Adviser to the Prime Minister. He chaired the Financial Sector Reforms Committee in 2007.

After completing schooling from Delhi Public School, he graduated in electrical engineering from IIT-Delhi. He also has an MBA from IIM-A, and a Ph.D. from MIT. His research was on the role of institutions, especially financial institutions, in fostering economic development. In 2003, he was awarded the inaugural Fischer Black Prize by the American Finance Association for contributions to finance by an economist under 40. He was Eric J. Gleacher Distinguished Service Professor of Finance, Graduate School of Business, University of Chicago.

Following the 2008 global meltdown, Rajan authored a book Fault Lines. A supporter of financial innovation, Rajan wrote that the process spans a range of possibilities — from the good to the potentially dangerous.

shishir.sinha@thehindu.co.in

(This article was published on August 6, 2013)
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