Saturday, September 03, 2016

Raghuram Rajan's legacy

As Raghuram Rajan demits office today (Sept.4th), it is tempting to dwell upon his achievements and failures though it may well be argued that it is too early to know the consequences of Rajan's actions as Governor as one of the most respected central banks in the world.

He has his share of admirers and critics. But no one can contest the fact that he made RBI Governorship more visible and more audible.  His argument that the Governor had a duty to be articulate on issues economic and quasi-economic may not have many takers. However, he religiously practised what he claimed was his duty.

He focused singularly on containing inflation. The government constrained him (most probably, he loved this constraint imposed on him) by holding him accountable to the single target of 4% plus or minus 2% inflation p.a. This was manna from heaven for a monetarist like Rajan. He made it appear as if he had a cross to bear and therefore he was forced to be insouciant to the need for growth.

Rupee was tumbling when he took charge. He stabilised it through innovative FCNR schemes. However, Rajan said oftentimes that these schemes were not his idea. He created many schemes for revitalisation of stressed assets. Results of these schemes could not have delighted him. He forced more transparency on commercial banks. Dirty linen became public but was not cleaned. Rajan was attempting a Sisyphean task.

Rajan's contribution towards turning the economy around may not be obvious, at least as yet. Still his willingness to attempt some bold steps like confronting the NPA problem head-on and making the banks more transparent which were not in the radar of former Governors deserves our gratitude.

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