India: Economy – New Central Bank Governor

British High Commission New Delhi

August 2013

Summary

Dr. Raghuram Rajan, former Chief Economist at the IMF, will be the next Governor of the Reserve Bank of India. Markets reacted positively

Detail

The Government has announced that the next RBI Governor will be Dr Raghuram Rajan. He will take over from Duvvuri Subbarao on 4 September.

Rajan is currently India’s Chief Economic Adviser, a post he’s held for a little over a year. He has had a stellar career, serving as the youngest ever Chief Economist at the IMF between 2003-06. He came into prominence in the aftermath of the 2008 financial crisis in a delayed recognition of his 2005 paper “Has financial development made the world riskier?”.  The paper drew criticism at the time, but Rajan was later lauded by many commentators for his foresight in predicting the crisis. 

Rajan is a believer in prudent fiscal management and has repeatedly said that the independence, effectiveness and credibility of monetary policy can be compromised by high budget deficits.Rajan was also the author of a report on modernising the Indian financial sector.  He argued for a move towards an inflation targeting central bank, intervening in currency markets only to limit excessive volatility, and for streamlining India’s regulatory architecture. 

The RBI is currently focussed on the depreciation of the rupee, with the markets and business concerned that measures to raise short term interest rates will hurt growth. On being announced as Governor, Rajan said: “we do not have a magic wand to make the problems disappear instantaneously, but I have absolutely no doubt we will deal with them.” 

Comment

The markets have reacted positively. Rajan’s competence, international experience and ability to communicate with investors have all been seen as advantages in his new role.

Disclaimer

The purpose of the FCO Country Update(s) for Business (”the Report”) prepared by UK Trade & Investment (UKTI) is to provide information and related comment to help recipients form their own judgments about making business decisions as to whether to invest or operate in a particular country. The Report’s contents were believed (at the time that the Report was prepared) to be reliable, but no representations or warranties, express or implied, are made or given by UKTI or its parent Departments (the Foreign and Commonwealth Office (FCO) and the Department for Business, Innovation and Skills (BIS)) as to the accuracy of the Report, its completeness or its suitability for any purpose. In particular, none of the Report’s contents should be construed as advice or solicitation to purchase or sell securities, commodities or any other form of financial instrument. No liability is accepted by UKTI, the FCO or BIS for any loss or damage (whether consequential or otherwise) which may arise out of or in connection with the Report.

Countries: India
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