Mr.Raghuram Rajan to be new RBI governor replacing Mr.D Subbarao, whose tenure ends Sep 4, 2013. India has named Chief Economic Adviser Raghuram Rajan as the next governor of the central bank after current governor Duvvuri Subbarao steps down from the post in early September. Economists and investors welcomed the appointment but they said Mr. Rajan, who took over as chief economic advisor in India’s finance ministry in August last year, will have his work cut out. He inherits the tricky task of restoring faith in the Indian rupee, which hit an all-time low of 61.80 against the U.S. dollar on Tuesday morning, as well as reviving India’s slowing economic growth. In recent weeks, Mr. Rajan, a former economist for the International Monetary Fund, has had an active role in the government’s efforts to appease investors in the face of the rupee’s collapse. The currency has fallen by about 9.5% against the U.S. dollar this year, but recovered slightly late Tuesday to 61.14 rupees, partly on news of Mr. Rajan’s appointment. Mr. Rajan has been frequently interacting with the media and investors to convey the message that the government is considering all possible measures to try to stabilize the currency. He has reiterated several times that the rupee’s recent woes are linked to a strengthening in the U.S. dollar as U.S. assets have become more attractive lately. Economists hope that Mr. Rajan’s stint at the finance ministry will ensure better coordination between the government and the Reserve Bank of India, after he takes over as chairman. “He enjoys an edge in terms of his understanding of global economic developments,” said Siddhartha Sanyal, chief economist at Barclays Capital in India. In a statement during a news conference Tuesday, Mr. Rajan said it was a great honor to be appointed governor of the RBI. “These are challenging times for the Indian economy, though no one can have any doubt about the country’s promise,” Mr. Rajan told reporters. “We do not have magic wand to make the problems disappear instantaneously. But I have absolutely no doubt that we will deal with them.” Mr. Rajan, 50, has a reputation for prescience: He famously warned of impending financial collapse at a 2005 gathering in honor of former U.S. Federal Reserve Chairman Alan Greenspan. In 2008, Mr. Rajan gave a speech at the Bombay Chamber of Commerce, in which he said that India’s actions in the next few years would determine whether the country would join nations such as South Korea and Taiwan that have made their way from poverty to moderate prosperity in a couple of generations. He warned that the unprecedented growth levels India enjoyed at the start of the 21st century could turn out to be “simply a spurt whose underpinnings are unstable.” Now, five years on, with growth having fallen to a decade low of 5% and foreign capital fleeing the country, the second scenario appears to be playing out. India can only hope that as head of the central bank, Mr. Rajan is able to turn things round. The economist is likely to do this by offering his support for further liberalization of the economy and privatization of state firms. He is a firm believer that reforms to India’s economy in 1991 that set India on a high-growth path, need to be extended. “We need to become paranoid again [about growth], as we were in the early 1990s,” he said in a speech in April 2012. “The gap between our spending and our saving is making us dependent on short-term foreign inflows to a dangerously high extent, at a time that the international investor is increasingly skeptical about the India story,” he added in the same speech. Like the Reserve Bank of India, where he is headed, Mr. Rajan is a strong advocate of reforming India’s large subsidy program, particularly for fuel, which many analysts blame for swelling the fiscal deficit and fueling inflation.
Posted on: Tue, 06 Aug 2013 15:43:31 +0000
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