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Raghuram Rajan -  ‘Young Economist’ : Will He Be Able To Put Economy Back on Track and  Sustain Internal Politics at RBI and Political Pressures



Rajesh Goyal 


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Quote of the Day :   A stone is broken by the last stroke. This does not mean first stroke was useless. Success is a result of continuous daily efforts.


There will be change of guards at the Mint Street in early next month (September 2013) and Mr Raghuram Rajan, who will be one of the youngest RBI Governor,  will take over the charge.   During last few years I have written many articles in admiration of Mr Subbarao – mainly on account of  the guts he had shown to sustain the pressures / hammering from FM and senior bankers (like Pradipta Chaudhury of SBI).    He proved himself to be a seasoned bureaucrat and asserted in the decision making in the domain he was asked to work.   Right from the time he took over, it was a difficult time.   His sustained efforts brought the economy on the right tracks for few months,  but the huge corruption scandals resulted in complete paralysis of the government policies and huge Current Account Deficit, which have ultimately derailed the Indian economy.


Now once again the new incumbent, Mr Rajan, will be facing new challenges and he has to show his acumen to bring the economy on tracks.   It will be certainly a Herculean task.  Let us first discuss the challenges he faces on the economic  front.  I am sure some of my colleagues from banking sector will frown at me,  as most of them know me only as a small time banker.   I know my limitations, but would like to disclose here that I had a chance to watch closely the Top Economists,  even before I joined banking.   I had the honour to work with an economist who was offered the post of Chief Economic Advisor to GoI in mid 1970s, but he flatly refused to accept the same on account of his academic interests.     After the refusal by this economist, the post was offered to Mr Manmohan Singh, who gladly accepted the same.      While working with such Economists, I learnt a lot during that period.




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The challenges which Raghuram Rajan faces include inter-alia:


·         Bring Stability to Indian Rupee :  Since the beginning of the year, INR has lost most of its sheen and at present is passing through a volatile phase and seeing new lows almost on weekly basis.   The spiral effect of this can completely derail Indian economy.   Thus, undoubtedly this is likely to be his first priority.  Although government has already committed that it will take steps to help INR stabilize, but keeping in view the weak government and elections round the corner, I have serious doubts.   Therefore, Mr Rajan will have only limited options;


·         Control Inflation :  Mr Subbarao had been fighting this menace for many months.  He had been charged that he had put on hold the growth story in his pursuit to control inflation.   Hawks are likely to blame him that he failed in both.   However, I am of the firm view that he did not best and took right steps but government on its part miserably failed and always kept Mr Subbarao on tenterhooks by blaming him for not doing enough in rate cuts.   Had he succumbed to such pressures, we would have been in much worse condition.   Finally, inflation is under control to large extent, but poor fiscal management by government has tied the hands of RBI and thus there is still huge risk that with depreciation of rupee and huge CAD, inflation can raise its head again any time.  Thus, Mr Rajan will have to continue keep at least one eye on inflation also;


·         Rising NPAs and Governance Issues in Banking Sector :   The recent exposes by Cobrapost have brought to limelight the issues of mis- governance in banking sector.   As I have written earlier, one of the issues on which I feel Mr Subbarao failed to take steps, is the appropriate punishment to the top bosses in banking sector who have made a joke of KYC norms and other moral issues.   In view of the large scale corruption,  personal gains in the shape of promotions and elevations even after retirements, the top brass of the banking had given loans to unscrupulous businessmen, who now under the garb of slow down in economy, are defaulting in large scale.  Mr Rajan will have to address this issue by certain tough messages to the banking circles that he means business or else the condition of these banks will change from bad to worse.


·         Keep Live the Growth Story :  In the life of nation, ups and downs in growth are normal phases, but sometimes such phases happen purely due to inept handling of the situations rather than these being part of the economic cycles.   Sometimes a nation grows at a much faster pace merely on account of a strong feeling and perception among the investors that this country has a great future.   I personally feel India too had this phase in last few years (perception about BRICS etc.).   However, now it is the other way round and there is pessimism about India.   Mr Rajan, by his actions has to keep alive the growth story so that there is optimism and investors come back to India.


The above challenges have been discussed and will continue to be discussed in Financial newspapers and magazines.  One challenge which I feel he will face and is not likely to be discussed by any newspapers and magazines, is the challenge of  ego clash of Senior vs Junior or old vs young in RBI.  This is an area where rarely a journalist will dare to venture, but I can do so as I am a common man and not a journalist from a top newspapers who is dependent on top bosses for their news items / interviews or for advertisement revenue.


Mr Subbarao was undoubtedly a very senior bureaucrat and was revered across all classes – though some may have differed with him on certain issues.   Most of bankers will still remember when Mr K C Chakrabarty had a clash with Mr Subbarao and had to be snubbed by Governor and stripped of all portfolios except Rajya Bhasha.  This had happened inspite of the fact that Governor was in no way junior to DG. 


Now newspapers are full of praise for this so called Young Economist being at the helm of RBI affairs.  I too do not have doubt about his capabilities.  Question which arises in my mind is whether the ‘young age’ will become a virtue or a drag for his performance.   I am raising this issue as most of the bankers are facing such a clash of personalities in the banking sector.    In last five or six years, some CMDs have brazenly promoted junior officers by ignoring the performance of seniors.   These banks have seen  lot of personality clash as senior in service are being asked to serve under the junior people.   Such brazen violation of seniority has led to  slower growth of the banks and rise in NPAs. 


Rajan too is likely to face challenges  from his Deputies, some of them are much older and experienced in the filed of banking.  Some of them with high ego.    Some of such deputies may have to for the FIRST TIME report to a person who is younger to them in age and experience.   It will be a tough task and a new experience  for such Deputies to listen to him rather than dictate him.   It is likely that for the first time they will see the bitter taste - a taste which some of them might have forced many others to taste many time.  Some of them with high egos are likely to assert themselves as it happens usually when a new incumbent takes over.    I hope such ego clashes will be minimal and Mr Rajan will be able to successfully assert himself and differences will not come to public domain frequently.    If Mr Rajan fails on this count, it will be a great loss to the nation. 


Another challenge for the new RBI Governor will be to ward off the political pressure in framing and implementing economic and fiscal policies as last few years have seen such pressures growing.  Now elections around the corner such pressures are likely to increase by present government.


I hope we will get a chance to get different perspective for the growth model of Indian economy.  Good luck to Raghuramji !



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