Expert views – Raghuram Rajan to replace Subbarao as next RBI governor

India's chief economic adviser Raghuram Rajan walks inside the finance ministry in New Delhi August 6, 2013. REUTERS/Adnan AbidiRaghuram Rajan speaks during an interview with Reuters in New Delhi March 11, 2013. REUTERS/B Mathur/Files

Place of birth: Bhopal

Education

1985: BTech in electrical engineering (gold medallist), IIT Delhi

1987: Postgraduate diploma in business administration (gold medallist), IIM Ahmedabad

1991: PhD in management, MIT

Career

Joined the University of Chicago’s Booth School of Business after graduation

2003: Appointed youngest ever chief economist (official designation: Economic Counselor and Director of Research) at IMF. Served till December 2006

2005: In a paper titled ‘Has Financial Development Made the World Riskier?’, Rajan warned of a looming disaster in the financial services sector. US treasury secretary Lawrence Summers called the comments “misguided” and Rajan a “Luddite”

Rajan was proved right when the US sub-prime crisis snowballed into a global economic slowdown

2008: Prime Minister Manmohan Singh appointed Rajan honorary economic adviser

2012: Rajan appointed chief economic advisor to the ministry of finance

Awards and recognition

2003: First winner of the Fischer Black Prize awarded by the American Finance Association for contributions to the theory and practice of finance by an under-40 economist

2010: Foreign Policy magazine listed him among the Top 100 Global Thinkers

2011: A poll by The Economist ranked Rajan as the economist with “the most important ideas for a post-crisis world”

Rajan’s views:

On growth: “If we hit the bottom and start growing. 6-6.5% when the rest of the world is growing at 1-1.5%, we will create a positive dynamic that will serve us well.”

On the politician-industralist nexus: “There is a danger that if we let the nexus between the politician and businessmen get too strong, we could shut down competition.”

On governance: “What we need to do is improve the level of governance to the level of the economy that we have and that process in underway.”

Tough tasks ahead

Arrest the rupee’s slide that has hit record lows.

Aid investment and spur growth by keeping interest rates low.

Cool inflation while trying to boost demand by keeping interest rates low.

(Reuters) – The government has appointed Raghuram Rajan, the chief economic adviser in the finance ministry, to be the next governor of the Reserve Bank of India for a three year term, a statement by the finance minister said on Tuesday.

Rajan will replace Duvvuri Subbarao, whose tenure ends on September 4 after five years.

COMMENTARY

NAVNEET MUNOT, CHIEF INVESTMENT OFFICER, SBI MUTUAL FUND, MUMBAI

“RBI has multiple objectives and several times they are at odds with each so it’s very difficult to say at this stage if this person will be hawkish or dovish, but given his background and stature, this should send the right signal to investors.”

ROBERT PRIOR, WANDESFORDE, ECONOMIST, CREDIT SUISSE, SINGAPORE

“He is a highly credible, experienced economist. He has no central banking background so it will be a steep learning curve. Effective credible communication with market is an important part of the job.

“The jury is out on his monetary policy views. My assumption is he will be pragmatic. Hopefully he will be a safe pair of hands.”

SUJAN HAJRA, CHIEF ECONOMIST, ANAND RATHI, MUMBAI

“Rajan has previously worked with RBI as a consultant and with the government. He also has international experience with the IMF. I would think he would have a holistic view.

“He is familiar with Indian policy circles and has ground feel. We have seen people like Stanley Fischer (Israel) have played a good role as governor after coming from IMF.

“He is clearly emphasizing the need to bring back growth. He will be more pro-growth.”

A PRASANNA, ECONOMIST, ICICI SECURITIES PRIMARY DEALERSHIP LTD, MUMBAI

“We welcome the move. This will give lot of confidence to the market since he is a well respected economist.

“I expect Dr. Rajan to take more steps for bond market development, set up the monetary policy committee to formulate monetary policy and separate the debt management functions of RBI, as part of these were his own recommendations.

“I expect these to happen over a period of 18-36 months. His international experience will stand him in good stead to fulfill RBI’s mandate.”

RADHIKA RAO, ECONOMIST, DBS, SINGAPORE

“This appointment is a positive development for the markets though it would be premature to assume that this change will mark a reversal in policies.

“The new appointee will be taking over the mantle at a challenging juncture and weighing inflationary risks, rupee depreciation and growth headwinds, he might also lean towards status quo on the rates front. Nonetheless some stop-gap measures to plug rupee depreciation might be resorted to in a bid to calm the markets.”

SHUBHADA RAO, CHIEF ECONOMIST, YES BANK, MUMBAI

“Given the concerns on the external sector, the policy focus will essentially remain the same, that of containing the volatility in the rupee without jeopardizing growth in the medium to long term. While we still believe that with stability returning to foreign exchange markets, there is a case for rate cuts to spur growth and we hold on to our view of 50 bps (cut) for the rest of the year.”

SIDDHARTHA SANYAL, INDIA ECONOMIST, BARCLAYS, MUMBAI:

“Raghuram Rajan seems to be maintaining a growth supportive stance in the medium term. In the long run, expectations will be there that he will lead further development of various segments of the financial markets.

“In the last two months, he has been taking a key role on rupee-related steps, and his appointment as the governor will lift expectations of constructive and positive steps to lift the rupee.”

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