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RBI: New Governor

Can Rajan ride to the rescue?

 

India Inc expects the new RBI governor to be the white knight
AMIR HOSSAIN | Issue Dated: September 22, 2013, New Delhi
Tags : Raghuram Rajan | RBI Governor | IMF | Indian economy |
 

Raghuram Rajan comes into his new job with 24 carat gold-plated credentials. Before taking over the reins of India's apex bank, Rajan served as the Chief Economic Adviser to India's Ministry of Finance. His reputation as an Economics wunderkind precedes the man himself who also was a former Chief Economist at the International Monetary Fund, in which capacity he is credited with prophesying the coming global economic and financial apocalypse of 2008.

And true to his reputation, Rajan has hit the ground running ever since he took charge as RBI's 23rd Governor on September 5. On the very first day itself, he went for some big hits. He announced that the RBI will move quickly to free up the bond and currency markets and push for the local incorporation of foreign banks. He also hinted that the regulator would also make it easier for banks to open new branches. These policies have been hanging fire for several years.

Rajan's candid and forward-looking pronouncements helped to restore the nerves of a market that had been on edge for quite sometime. His words seemed to have a cathartic, healing effect on an economy that was getting desperate for some good news. He said: "These are not easy times, and the economy faces challenges” but “India is a fundamentally sound economy with a bright future.” As if on cue, the BSE Sensex rallied 1,000 points within three days of his appointment, irrespective of all the negatives, domestic as well as global.   

The question is: will the optimism hold and will Rajan be able to guide the economy back to its humming phase? After all, he has taken charge at a critical time when the country is running a record current account deficit and a hefty fiscal deficit not to mention other deep-seated problems such as an alarming inflation, a sliding currency and a sharp economic downturn. Moreover, the rupee remains in a volatile territory and may depreciate to new lows against the dollar. If one were to hazard a guess the journey of Raghuram Rajan promises to be anything but a roller-coaster ride.

Rajan has never made pie-in-the-sky promises of getting the economy by the scruff and back on the rails. On the contrary, he has time and again averred that he does not wield a magic wand. But he does seem to have a road map and a credible plan up his sleeve. He has also come out with new ideas, saying he would like “to internationalise the rupee, liberalise branch banking, open up banking to more entrants, reduce the pre-emption of bank resources for investment in government securities, rethink and reduce, the scope and target of priority sector lending, allow banks to borrow more from abroad to help reduce the CAD, and protect the savings of the ordinary bank customer by offering consumer price-linked inflation.”

However, some of the biggest problems facing the economy pertain to trade and government budget deficits and bottlenecks in the infrastructure sector, which are in the political domain and beyond of Rajan’s control. Can he get the political side to back his policies? It will be interesting to see to how Rajan expects to remove the odds in his way.
 

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Posted By: Satyanarayana G | Hyderabad | September 17th 2013 | 12:09
If indian economy has to revive important parameters are Agriculture, Agriculture infrastructure, Power, particularly solar and wind and infrastructure. Then a balance between income and necessary accompaniments of growth and development. This means inflation should not be outcome of development and grwoth (As is said inflation is the tax that people pay for development). Wind fall gains must be contained. Then another important model that need to be constructed must be around busting the myth that urbanisation is sign of development or the mpore the urbanisation the more the GDP or Development or growth. It may have been true for the time periods before that is before IT revoluion of Year 2000. Unless these fundamentals are properly understood and put to practice in a new pardigm of fiscal management and Growth and Development model a sustainable growth of India at 8% minus eveli effects of such growth that is inflation, casualisation emplyment, unrest, widened poor and rich gap etc.




Issue Dated: Feb 5, 2017