Tough road ahead for new Indian central bank chief
By Krittivas Mukherjee, The Straits Times/Asia News NetworkAs India's next central bank chief, economist Raghuram Rajan will next month walk into a job that his predecessors have described as “lonely” and “thankless.”
August 13, 2013, 12:02 am TWN
Such descriptions may be mild, given the multiple challenges the 50-year-old Ivy League professor faces in trying to turn around Asia's third-largest economy.
The rupee is languishing at its lowest levels ever. Growth is at its slowest in a decade. And as with all emerging economies, foreign money in equities and bond markets is drying up.
Rajan, who made an oracle-like warning before the 2008 financial crash, will take on the role of governor of the Reserve Bank of India (RBI) from Dr Duvvuri Subbarao on September 5, when he begins a three-year term.
The economic vision of this cautious pro-markets liberal was shaped by straddling two worlds - the stifling government controls of his childhood India, and the unfettered exuberance of the economy in the United States, where he spent almost all his professional life.
“He has got the academic background, global macroeconomic perspective and knowledge of the Indian conditions,” A. Prasanna, an economist with the private sector ICICI Bank, told The Straits Times.
“Markets welcome him,” he added, referring to Rajan's pro-markets economics.
As soon as his appointment was announced on August 6, the rupee recovered slightly from a record low of 61.80 against the U.S. dollar, although some of the upswing was helped by the RBI.
The rupee has fallen some 13 percent this year, entrenching retail inflation and widening the current-account deficit to a record 4.8 percent of gross domestic product.
Economic expansion, at just 5 percent in 2012-13, has slowed to its lowest rate in a decade, and economists are repeatedly cutting their growth forecasts for the national economy.
Rajan's job is to stabilize the rupee and revive growth while controlling inflation. Yet, the real cause of India's poor performance may be a lack of political consensus to push growth, something outside the reach of an RBI governor.
Rajan certainly has the credentials to fight a sharp downturn. He holds engineering and management degrees from India's top schools and earned a doctorate in economics from the Massachusetts Institute of Technology in 1991.
In this photograph taken on Feb. 27, Indian Chief Economic Advisor Raghuram Rajan addresses the media in New Delhi. (AFP)