Raghuram Rajan ventures where central bankers fear to tread

Raghuram Rajan, like filmmaker Ritwik Ghatak, was lionised overseas before being recognised in India. But many in India still think Rajan is better for Wall Street than Dalal Street.

Of course, Rajan does nothing to change that perception. As far back as 2008, he said in a speech before the Bombay Chamber of Commerce that Indians tolerated venal politicians because "he is the crutch that helps the poor and underprivileged negotiate a system that gives them so little access" to public services that are their right.

He built on the theme again in August last year, and raised the profile of the Lalit Doshi Memorial Lecture several notches by tearing into the delicate issue of crony capitalism. "One of the greatest dangers to the growth of developing countries is the middle income trap, where crony capitalism creates oligarchies that slow down growth."

Rajan's next broadside really stirred the pot, for it was on Prime Minister Narendra Modi's favourite slogan of Make in India, and we say slogan because it has not gone much beyond that yet. "... the world as a whole is unlikely to be able to accommodate another export-led China." Instead of Make in India, he said, "we have to look to regional and domestic demand for our growth - to make in India primarily for India."

None of this should surprise someone who has followed Rajan over the years. He made his bones - in Mario Puzo's lingo - in August 2005. It was an annual gathering of high-powered economists in the US. They were honouring Alan Greenspan who was about to retire as the Federal Reserve's Chairman after a historic period of growth. Rajan, at the time a professor at Chicago University, thought of it as the right moment to present a paper titled: Has Financial Development Made the World Riskier? He ended it by answering in the affirmative.

The paper first made him unpopular. Then, as the financial crisis set in, they thought he was prescient. The truth is Rajan has never been seen as someone who tries to be part of the system. Until now.

His out-of-turn rate cut on January 15, albeit by a minuscule quarter percentage, is being seen by some, including one of his teachers at IIM Ahmedabad, as a concession - an attempt to fit in. What's more, it came in the wake of favourable noises made by Rajan and Finance Minister Arun Jatiley about how they did see eye to eye.

Many factors may have forced Rajan's hand. Oil prices have dipped faster than even someone as prescient as Rajan could have foreseen. WPI inflation is near zero. Consumer price rise is below RBI Deputy Governor Urjit Patel's target of 6 per cent by January 2016. The current account is poised to swing into a surplus for the first time in a decade.

Yet, the rate cut came on the back of Rajan's decision to make an exception and allow Tata Teleservices to buy Japanese partner DoCoMo's stake at a price higher than that mandated by the norms. Soon after, he allowed banks to act as insurance brokers and sell multiple products.

What will Rajan do next? He has six policy dates this year. How much and how often will he cut rates?

We can take solace in his opening statement after becoming RBI Governor on September 4, 2013, that he was not looking for Facebook 'likes'. Both, the Prime Minister and Finance Minister, are active on Facebook. If they still find Rajan likeable, there will be nothing to worry. Even Ritwik Ghatak went on to head the Film and Television Institute in Pune, as much a part of the establishment as any.