Mumbai: Raghuram Rajan, who took over as the new Governor of Reserve Bank of India (RBI) on Wednesday, is expected to shake up the banking system with a series of strong measures in a bid to show that someone is doing something about it. Otherwise the rupee, and the economy by extension, will continue to perform the way it has been with no one having a clue about it, highly placed sources in the banking industry said today.
Sources say that Raghuram, who made a no-nonsense speech while formally taking charge as the new Governor on Wednesday, will continue to make such speeches till such time when it will be time to raise or lower the bank rates, which will be basically decided by the state of the rupee (coin) that he will toss to arrive at a decision one way or the other.
(In fact, tossing the coin and choosing the course of action for the economy is significantly better way to structure policy decisions, because you at least start with a 50% chance for success, rather than go through some assumed economic model that is never going to work. As a matter of fact, no economic plan has ever worked to full success in any country. Or as that old saying in IMF goes, economies don’t succeed, only economists do).
One of the main challenges facing Raghuram is obviously ‘inflation’, which he, as a supply-side economist, must be aware ‘will always be doing something or the other’. It will be decidedly a tightrope walk for him. If Raghuram manages to tame the inflation, most likely the growth rate will take a beating. If he can keep the growth rate robust, the inflation rate will obviously be a cause for concern. In the event, as an economist, his principal task will be to keep at least one thing at worrisome levels so that he and other economists can continue to retain their jobs and earn their salary. Of course, it will be double whammy for him if he can ensure both inflation and growth rates to be precarious, which, of course, is what his predecessor Subba Rao pulled off.
The entry of Raghuram seems to have enthused the currency market on Thursday as the rupee seemed to have picked up steam against the dollar. However, analysts are still hedging their bets on whether the happiness is due to Raghuram’s arrival or the fact that Subba Rao will no longer be in the scene.
Raghuram, even though he had spent much of his professional life in America, is no stranger to Indian economy. Till recently, he was the Chief Economic Adviser to the Ministry of Finance. He would have had first-hand knowledge of what is wrong with the economy, especially since some of his advice is what would have doubtless contributed to it.
All things considered, it is a smart move from the UPA government to have made someone who had been a professional in America to lead the country’s central bank. Raghuram will now get a strong and personal understanding of the rupee’s calamitous fall, as he will no longer draw his salary in dollars. (‘The RBI Governor’, according to central government rules, ‘will receive his salary in rupees, even though he will manage Indian economy by mostly attending seminars and lucrative meetings abroad).
Raghuram, a qualified engineer from the IIT, Delhi, went on to do a post-graduate management degree at IIM, Ahemedabad and did his Ph. d in MIT to eventually end up as a medical doctor, going by the title of his book: Fault Lines: How Hidden Fractures Still Threaten the World Economy.
Raghuram is also the recipient of the prestigious Fischer Black Prize, given every two years to the financial economist who doesn’t wear thick spectacles.
Close acquaintances reveal that Raghuram Rajan is pretty level-headed and has the unique ability to balance extreme views, a quality that he doubtless inherited by the very important fact that his name contains both ‘Rahman’ and ‘Raja’. If not stopping the decline of rupee, Raghuram Rajan should at least step into stop the fall in the internet discourse between Raja and Rahman fans.
If he does that, an economist, for once, would have served some actual purpose.
(Disclaimer: Probably we are wrong to take the Reserve Bank of India seriously. It came into being on an April 1)