A Banker Close to the PM’s Heart
By Neeraj Mahajan
Government of India’s decision to appoint Raghuram G. Rajan, 50, as the next Governor of Reserve Bank of India for a period of three years hardly comes as a surprise. With the Prime Minister himself backing the Chief Economic Advisor, his selection as the 23rd Governor of RBI was a foregone conclusion.
The dice was heavily loaded in favor of Raghuram Rajan a lead advisor in the finance ministry who made a name for himself by predicting the global financial crisis. He was essentially an appointee of the Prime Minister. It might be recalled that in November 2008, Prime Minister Manmohan Singh had appointed Rajan as honorary economic advisor.
Once again Manmohan Singh insisted on Rajan’s selection as Chief Economic Advisor last year, when Kaushik Basu retired. This swung the tide in his favor and the Appointments Committee of Cabinet (ACC) simply echoed the PMs Choice. There were as many as 18 equally strong contenders for the post of Chief Economic Advisor advertised by the finance ministry in April 2012 and 8-9 interviews were conducted. The shortlisted candidates included IDFC managing director & CEO Rajiv Lall and Assistant secretary-general to United Nations Ajay Chibber – a three-member search committee comprising former RBI governor and PM’s key economic aide C Rangarajan (head), R Gopalan, secretary, department of economic affairs, and PK Mishra, secretary, department of personnel & training forwarded the probable names to Manmohan Singh who was also in charge of finance ministry after Pranab Mukherjee's nomination as the UPA Presidential candidate.
Interestingly Rajan, the economic advisor to the prime minister, has not even applied for the post. The search committee suo-moto nominated Rajan, a celebrated economist with global stature who had famously predicted that financial deregulation could increase systemic risks. Later, when P Chidambaram took over as finance minister, he too cast his vote in favor of Raghuraman Rajan. It is worth mentioning that the Chief Economic Advisor is the ex-officio cadre controlling authority of the Indian Economic Service and directly under the charge of Finance Minister.
Son of a former Indian diplomat Raghuraman Rajan has excellent credentials as a graduate in electrical engineering from IIT Delhi; Master in Business Administration from IIM Ahmedabad and MIT Boston. He has worked as a chief economist at the IMF and taught at Chicago University as a professor. Above all he enjoys the confidence and support of both the Prime Minister and the Finance Minister. Has an ideologically affinity with the PM- both of them are pro-market players.
The biggest weak point of this economist – is more western in his outlook -- he has spent almost all his professional life in the US. Though he understands economics but does not understand India. He is also not a master manipulator who can counter -- the subtle and not-so-subtle pressures, back stabs and intrigues -- within the Government of India. Rajan who authored a 2008 report on financial sector reforms in India is that he is an orthodox and conservative economist. A professional like Rajan may not like to be a puppet RBI Governor who likes being told what to do by North Block. At a time when bank licenses have to be given, North Block may not like a rebel inside RBI.
“It will be suicidal for us to have someone like Raghuram Rajan particularly at this moment when the Indian rupee has been under tremendous pressure. If we further remove the control and start following the agenda of Raghuram Rajan it will be suicidal for our economy. We should not make the same mistakes that other SE Asian economies made which led to the eruption of SE Asian financial crisis in Thailand, Malaysia and South Korea.,” opines Kavaljit Singh a reputed financial analyst and Director of Madhyam, a policy research institute
“Given a choice I would prefer a more balanced person who walks on the middle path instead of ideological leanings. Public policy should not be run on ideological basis either - right or left. These people are very orthodox that’s the problem. When you are running a complex country like India which has different businesses and complex structures in the society you cannot run the central bank on the basis of a particular kind of orthodox ideology”, he qualified.
(To Be Continued)