RBI Governor Raghuram Rajan is a man on a mission

Raghuram Rajan holds a grudge against the media. His worst pictures go to print, he told Business Today recently. Still, the 52-year old, lanky Reserve Bank of India (RBI) governor cheerfully posed for us at the central bank's 18th floor visitors' room, which has portraits of all his predecessors, right from Sir Osborne Smith to D. Subbarao. Rajan's jibe at the media is in a lighter vein. But as usual, he is frank and makes a point.   

A day before, the governor presided over the sixth bi-monthly monetary policy review in which he maintained status quo on interest rates and subsequently addressed the gathered media. He then took a flight out of Mumbai and, by the way, also celebrated his birthday. Rajan has exuded verve and passion in his stint at Mint Road. In just 17 months or so, the celebrated economist has stabilised a depreciating currency, tamed inflation and also initiated banking reforms. Business Today got an opportunity to meet Rajan for the second time since he joined in September 2013.

Rajan, who is credited with rightly predicting the global financial meltdown in 2008, is not confrontationist in his approach as portrayed in the media. But he has sparked off a debate on many issues. Take, for example, his frank view of the government's 'Make in India' initiative. He cautioned the government from following China's exports-led model that is facing challenges from a slowdown in the global economy. Indeed, Rajan's stand on several vital issues is different from that of the government. "I'm not trying to initiate a debate on literature or something where I have no insight," says Rajan. He goes on to add that his mandate is not limited to monetary policy alone. "It is about the safety and stability and growth of the economy."

Rajan is locked in a serious dialogue with the government on the new monetary policy framework. There are two issues that need to be ironed out. First, the constitution of the monetary policy committee, which will take a call  on interest rates. The government appointed Financial Sector Legislative Reforms Commission had recommended a seven-member committee - the RBI governor and deputy governor along with five external members appointed by the government. The RBI-appointed Urjit Patel committee has suggested a leaner five-member committee including the governor, deputy governor and executive director along with two external members. This issue pertains to autonomy of the central bank. "We have to make sure that the members of the monetary policy committee don't have conflict of interest. They  don't hold jobs that make them want interest rates to move in a particular direction," says Rajan without going into the specifics.

The second issue, related to the new monetary policy framework, is fixing accountability. The new monetary policy framework would target an inflation rate of 4 per cent (with a maximum deviation of 2 per cent) beyond 2016 and the governor would be held accountable if the central bank fails to meet this target. But how can the governor be held accountable when the fiscal deficit is not under his domain? Similarly, supply side bottlenecks, which can trigger inflation, are also beyond the purview of the RBI. Rajan has already initiated a debate on whether India needs more institutions to ensure deficits say within control.

Meanwhile, Rajan doesn't believe his mission is accomplished despite stabilising the currency and controlling inflation. "I think there are so many issues that we need to work on that it reminds us of this rotating gadget which moves, stop and fixes  and then again moves, stop, fixes," says Rajan.

Indeed, there are many issues related to the banking system where the government needs to take a stand such as bankruptcy laws, merger of banks and strengthening of the legal system to crack down on defaulters. Rajan has already made his views known on these subjects. Clearly, the Governor of India's central bank is moving at a fast pace and is keen to set the agenda.