INDIAon Tuesday (August 6) named a former International Monetary Fund chief economist as its new central bank governor as it grapples with a plunging currency and the slowest growth in a decade.
Raghuram Rajan, famed for predicting the 2008 global financial crisis, will head the Reserve Bank of India for a three-year initial term, replacing incumbent D Subbarao, who retires next month.
He takes the reins as Asia’s third-largest economy faces testing times – hit by a capital flight with investors worried about weak growth, a huge deficit, stalled reforms and graft scandals that have paralysed the political process.
“There is no magic wand to make the problems disappear instantaneously,” said Rajan, who is currently chief economic adviser to the Indian government
But “the government and the bank are working together to address the challenges” and there is “absolutely no doubt we will deal with them,” Rajan said.
“No one can doubt the country’s promise,” the 50-year-old economist added in a statement.
Rajan qualified as an electrical engineer at the Indian Institute of Technology and later did his doctorate at the Massachusetts Institute of Technology.
He became the IMF’s chief economist in 2003 at the relatively young age of 40 where he warned of a global meltdown from excessive financial risk-taking.
Critics scoffed at Rajan’s dire predictions – made at the height of the US housing bubble -calling him misguided.
But Rajan, author of the book “Fault Lines – How Hidden Fractures Still Threaten the World Economy”, won grudging accolades when he was eventually proved right.
Rajan’s appointment came on a day of high financial drama in India, underscoring the challenges facing him.
“He is an ideal person to take on this responsibility at this difficult stage,” said Adi Godrej, president of the Confederation of Indian Industry, a leading business group.
Rajan, who is regarded as an original thinker favouring free markets and deregulation, is expected to bring fresh ideas to the central bank which the finance ministry is said to regard as overly conservative.
Before returning to India last year, Rajan was a professor at the University of Chicago’s Booth School of Business.
