This Article is From Sep 03, 2013

Raghuram Rajan to take over as RBI governor tomorrow

Raghuram Rajan to take over as RBI governor tomorrow

Internationally renowned economist Raghuram Rajan will take over as RBI Governor tomorrow and plunge straight into a fire-fight situation as the country battles a rapid fall in rupee, high inflation, low growth and burgeoning current account deficit (CAD).

50-year-old Mr. Rajan, a former chief economist with the International Monetary Fund (IMF), will take over a difficult assignment from Duvvuri Subbarao on his completing five years in Mint Road.

Mr. Rajan, who was also economic advisor to the finance ministry has already said that he has no magic wand to face the challenge before the country but would deal with them one at a time.

The government, which was at the receiving end of Mr. Subbarao's unrelenting focus on inflation control at the cost of low interest rates, would hope that the new incumbent would reverse some of those policies.

"We have enough ideas. It is not just the currency, it is financial inclusion, it is growth. I think there is a lot to do. There are challenges in the economy; these things are not going to be overcome overnight. There is no magic wand. But there are undoubtedly solutions to many of the problems that the RBI can tackle and the job is to go ahead and do it.

"We will do it one step at a time. Make sure that it progresses every day," he told reporters yesterday on his last day of office at the Finance Ministry.

Mr. Rajan, who was appointed as the Chief Economic Advisor in the Finance Ministry in August last year, bring to RBI a vast experience gained at the IMF and during the brief stint in the government.

Known for his frank views, Mr. Rajan, who will be the 23rd Governor of the Reserve Bank of India (RBI), was acclaimed for predicting the 2008 global financial crisis. In 2005, he had delivered a lecture critical of the financial sector, arguing that a financial disaster might be looming.

He is an alumni of IIM Ahmedabad and IIT-Delhi and had replaced Kaushik Basu as Chief Economic Advisor in the Finance Ministry last year.

There has been speculation that Mr. Rajan is not in favour of mid-quarter reviews and could dispense with the practice, although the scheduled mid-quarter review due later in the month would be brought out.

While, there have been some signs of improvement in CAD in the first quarter mainly on account of decline in gold imports, firming international oil rates in wake of geopolitical situation developing around Syria will put further pressure.

The government and the RBI will have a difficult task of bringing CAD down to $ 70 billion in the current fiscal, from $88.2 billion last year. The rising cost of crude oil import will continue to put pressure on the CAD.

Impacted by high CAD, the rupee declined sharply touching an all-time low of 68.80 to a dollar last week. It, however, improved later and has been trading around 66 level.

On the positive side, the good monsoon and pick up in exports may provide some support to Mr. Rajan's efforts. However, he will face a tough time in drawing a balance between the competing needs of keeping inflation under control and promoting growth.

Mr. Subbarao demits office after a 5 tumultuous years that witnessed global financial stress that impacted India too.

While, there were brickbats for his tight monetary policy that his critics called hawkish, there were many admirers for his stance they considered independent of the government.