ARTICLE : RBI !

Messiah on Mint Street: Why expectations from RBI Governor Raghuram Rajan are so high

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Sometime towards late May and early June last year, the government was vetting the names of a few economists to take over from India's chief economic adviser Kaushik Basu who was leaving after completing his term.

Pranab Mukherjee who was finance minister then had been sounded out on some potential candidates and early stage informal discussions in the finance ministry centered on the merits of some of these economists. For sure, Raghuram Rajan, a top-drawer economic and academic mind featured in those talks, but a standout name at that time was that of Subir Gokarn, then a deputy governor of the Reserve Bank of India (RBI).

Within weeks, in a twist of fate, the script changed. Mukherjee, now widely blamed for fiscal mismanagement during his tenure in the ministry between 2009 and 2012, was nominated by the Congress as a presidential candidate and then elected as president in July. Within weeks of his departure, the government moved swiftly to bring on board Rajan as chief economic adviser when prime minister Manmohan Singh had oversight of the finance ministry for over a month before his cabinet colleague P Chidambaram returned to his old job.

In the process, the government smoothened the path for the entry of a distinguished academic and economist into the realm of Indian public policymaking. Rajan who comes with formidable qualifications for the job has been greeted with a gushing welcome by the Indian media according to the condescending foreign press which, for its part, was slow on the uptake when the new central bank governor announced a raft of measures, hours after taking over.

It is rare that central bank chiefs open their innings by taking recourse to Open Mouth Operations — as different from the conventional Open Market Operations. But calculated bets like boosting reserves through NRI deposits — a throwback to an option abandoned two decades ago — did their bit to lift sentiment in financial markets. The elation may also have to do with the new governor's credibility and approach at a time when fellow policymakers in Delhi have been shown up for their poor marksmanship.