Rajan will be among the youngest to head RBI

Chief economic adviser (CEA) Raghuram Rajan was appointed as the next Reserve Bank of India (RBI) governor on Tuesday. Rajan will be among the youngest governors when he takes charge from D Subbarao on September 4. Rajan has been appointed for a three-year term. Subbarao was also appointed for three years but was given a two-year extension. The former University of Chicago professor, who has also served as chief economist with the International Monetary Fund, brings global stature to a post monopolised by the Indian Administrative Service lobby in recent years. At 50, he is also a good 10 years younger than the retired bureaucrats who took over the helm at RBI.

"These are challenging times for the Indian economy though no one can have any doubt about the country's promise," Rajan said in brief remarks late on Tuesday. "The government and the Reserve Bank are working together to address these challenges. We do not have a magic wand to make the problems disappear instantaneously. But I have absolutely no doubt that we will deal with them."

Rajan had shot to world fame with a 2005 paper presented at a meeting of Central bankers in the US warning that financial sector developments could trigger an economic crisis. The argument, later expounded in his book Fault Lines: How Hidden Fractures Still Threaten the World Economy, was dismissed by many at the time as alarmist but the subsequent global economic meltdown in 2008 proved him right.

Rajan pipped to the post economic affairs secretary Arvind Mayaram, who enjoy a high rating with Chidambaram and formidable backing of the bureaucracy. The buzz in North Block has been that Rajan had returned to India on the promise that he would be given the post of RBI governor and his stint as CEA was merely to familiarise him with the working of the government.

Unlike Subbarao, Rajan favours the formation of a monetary policy committee which would dilute complete power enjoyed by the governor. The step would bring RBI more in line with the prac-tice at major Central banks in other countries.

Rajan will also oversee the issuance of bank licences to corporate houses under a policy pushed by the finance ministry but opposed by many in RBI. Subbarao was viewed as a hawk who stuck to a tight money policy in order to control inflation.

Courtesy: Mail Today