Raghu Rajan
Will this Greenspan critic bailout India from crisis?
In the year of 2005 the US economy was in a state of inebriation, driven by derivative profits, huge bonuses and booming realty markets. At an annual gathering of the world's top economists at Jackson Hole, US Fed Chief Alan Greenspan was being showered with praises. In attendance were Ben Bernanke, Tim Geithner and Larry Summers. But the then chief economist of IMF, Raghuram Rajan, did not exactly stick to the protocol. Instead he delivered a paper to the central bankers of the world pointing out precisely at the financial tsunami in the making. The paper particularly focused on the misguided incentive structures in Wall Street. Ones which incentivized huge short term profits and cash bonuses, but had no room for penalties on later losses. Rajan even warned the bankers about potentially bankrupting their own firms or causing a crash in the financial system. It was no surprise that the trio of Bernanke, Geithner and summers brushed off Rajan's views as being too naive. While Dr Rajan stood vindicated when the subprime crisis hit the US, his views are yet to find enough acceptances in the US Fed.
So as the RBI governor, Raghuram Rajan's mandate is not just in terms of keeping the Indian economy free of cheap money. He has several critical crises to deal, starting with healing the rupee. Once done with that, current account deficit, inflation, GDP growth and several other problems are in the pipeline. So while his crisis prediction skills are proven, the crisis resolving skills need to be on display. Hopefully, having better knowledge of how deep rooted the crisis in the West is, will aid Dr Rajan in keeping India suitably flexible.
But it goes without saying that choosing an able RBI governor does not absolve the government of its own responsibilities. Given its track record of pressurizing the RBI to frame policies as per the Finance Minister's fancies, the government could be left with a wasted
In the year of 2005 the US economy was in a state of inebriation, driven by derivative profits, huge bonuses and booming realty markets. At an annual gathering of the world's top economists at Jackson Hole, US Fed Chief Alan Greenspan was being showered with praises. In attendance were Ben Bernanke, Tim Geithner and Larry Summers. But the then chief economist of IMF, Raghuram Rajan, did not exactly stick to the protocol. Instead he delivered a paper to the central bankers of the world pointing out precisely at the financial tsunami in the making. The paper particularly focused on the misguided incentive structures in Wall Street. Ones which incentivized huge short term profits and cash bonuses, but had no room for penalties on later losses. Rajan even warned the bankers about potentially bankrupting their own firms or causing a crash in the financial system. It was no surprise that the trio of Bernanke, Geithner and summers brushed off Rajan's views as being too naive. While Dr Rajan stood vindicated when the subprime crisis hit the US, his views are yet to find enough acceptances in the US Fed.
So as the RBI governor, Raghuram Rajan's mandate is not just in terms of keeping the Indian economy free of cheap money. He has several critical crises to deal, starting with healing the rupee. Once done with that, current account deficit, inflation, GDP growth and several other problems are in the pipeline. So while his crisis prediction skills are proven, the crisis resolving skills need to be on display. Hopefully, having better knowledge of how deep rooted the crisis in the West is, will aid Dr Rajan in keeping India suitably flexible.
But it goes without saying that choosing an able RBI governor does not absolve the government of its own responsibilities. Given its track record of pressurizing the RBI to frame policies as per the Finance Minister's fancies, the government could be left with a wasted