Raghuram Rajan’s appointment as RBI governor comes after his successful stint of slightly under a year as the chief economic adviser.
Going by its past experience of differences between the central bank and the finance ministry, the government has preferred a person who could bridge this gap.
What must have gone in Rajan’s favour is his international experience and understanding of the global economy at a time when external factors are pulling down the rupee.
When he was appointed honorary economic adviser about five years ago, the question everybody had seemingly asked was: Would Bhopal-born Rajan have a role to play in assisting the Indian government in articulating its stance at the global meet? Moreover, general elections in the country were due in a few months. Why did Prime Minister Singh bring Rajan on board at that moment?
After studying electrical engineering at the Indian Institute of Technology, Delhi and business administration at the Indian Institute of Management Ahmedabad, Rajan did his PhD from the Massachusetts Institute of Technology. In September 2003, when he was 40, Rajan became the Economic Counselor and Director of Research (Chief Economist) of the International Monetary Fund — the youngest ever to be appointed to this post. In early 2007, Rajan returned to the Graduate School of Business at the University of Chicago where he is the Eric J Gleacher Distinguished Service Professor of Finance.
In 2003, Rajan was awarded the inaugural Fischer Black Prize by the American Finance Association for contributions to finance by an economist under 40. His most widely-read book, Saving Capitalism from the Capitalist, was co-authored with fellow Chicago GSB professor Luigi Zingales and published in 2004.
Rajan had also headed the Committee on Financial Sector Reforms in the country. In that, he had called for Parliament, through the finance ministry, to set a specific remit for financial sector regulators every five years. The report had also said the regulators should report to a Standing Committee of Parliament to explain the progress they have made on their remit.
The report made several other suggestions including that the Reserve Bank of India should have a single objective — low inflation, which still remains a challenge along with economic growth and currency depreciation.