New RBI chief Rajan has big tasks at hand
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Mumbai: As the 23rd governor-designate of the Reserve Bank of India, Raghuram Rajan — a former IMF chief economist and presently chief economic advisor to the government — is an X factor. There is a volley of superlatives being thrown around about the man himself, about his knowledge of the global economy, his intellectual prowess and what he brings to the table due to his vast experience ab-road. He has reportedly spent more years out of the country than in it.
He takes over at a time when India is going through a severe crisis of confidence and policy paralysis which has resulted in slowing economic growth, a burgeoning CAD that has weakened the rupee by 13 per cent since January and a fiscal deficit (FD) that threatens to cross the finance minister P. Chida-mbaram’s Laxman Rekha of 4.8 per cent of GDP.
His task at the RBI is unenviable as he has to control inflation and see that growth is not hurt and saving the rupee which has been shedding its value as trees shed leaves in autumn.
He will be facing the same problems as the present governor Dr Duvvuri Subbarao faced in the last two years, namely the inability of the government to control the supple side constraints and the bottlenecks that are holding up infrastructure projects.
Inflation cannot be controlled by monetary policy alone and needs support from the fiscal side. Dr Subbarao earned the wrath of the government for this, one wonders if Mr Rajan will face the same negative vibes from Delhi.
Or maybe he will have a different way of handling this sensitive but significant issue. Moreover, if one has to go by some of the latest pronouncements of the finance minister P.Chida-mbaram, the RBI would also have to play a role in development and job generation. So Mr Rajan will have to multi-task in a way that Dr Subbarao did not have to.
Mr Rajan has in his earlier writings talked of the main task of the RBI being to controlling inflation. He is also for operational independence, which also he will have to fight for considering the present dispensation at the Centre.
All in all, the youngest-ever governor will have one of the most difficult days ahead of him. He knows it and is covering his flanks pretty directly saying that he does not have a magic wand to wave away the dire issues facing the country. Maybe you don’t need a magic wand but just the right policies.
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