India central bank chief may face short honeymoon
By Penelope MacRae, AFPNEW DELHI -- The euphoria which greeted new central bank governor Raghuram Rajan has been unprecedented in India's normally sober financial world but the honeymoon may be shortlived.
September 9, 2013, 11:48 am TWN
Analysts say it is a mistake to believe the suave star economist, whose first day on the job last week one financial daily likened to the “central banking equivalent of a blockbuster movie opening,” is a miracle man who can rescue India's ailing economy.
“There was tremendous elation among market participants over Rajan's appointment,” Ajay Bodke, strategy head at Mumbai investment house Prabhudas Lilladher, told AFP.
“But we need to temper that exuberance and look dispassionately at the economic fundamentals and that picture is not good,” he said.
The former International Monetary Fund chief economist has been plunged into a maelstrom of a record current account deficit — the broadest measure of trade, a hefty fiscal deficit, stubborn inflation, a weak currency and a sharp economic slowdown.
Analysts say Rajan, famed for forecasting the 2008 global financial meltdown, can provide symptomatic relief by using various mechanisms to lure overseas funds to cover the high current account deficit.
But the government holds the most important levers for reviving economic growth, cutting public subsidies and the twin deficits and restoring foreign investor confidence, analysts say.
“The government needs to take decisive measures to signal to international markets that India is taking the path of fiscal rectitude and shunning the path of populist prolificacy,” Bodke said.