Written by Ram Smaran Suresh

On the release of Dr. Rajan’s much anticipated book, ‘I Do What I Do”, here’s a brief account of the former governor’s tenure at the RBI

            A little over 4 years ago India’s economy was (euphemistically) fragile. The then $1.8-trillion economy battled challenging times, registering a decade-low growth of 4.5% in the financial year 2012-2013. Despite the slow growth rate, retail inflation was a mammoth 11.24%. Onion prices, which is a number that seems to entice the Indian public, escalated to a staggering Rs.100/kg in certain markets. If this wasn’t bad enough, India had the highest inflation in Asia, and one of the highest in the world at one point. The rupee plummeted to a historic low of 68.85 in August 2013. To make the appalling performance alarmingly blatant, India was dubbed one of the “Fragile Five”: a term used for countries with high inflation, currency volatility and weak growth.

            Clearly, the numbers paint a vividly dreadful picture. India’s economic woes seemed endless, calling for desperate reforms to stabilize the economy. Thankfully, the call was answered. Broadly, two landmark changes have steered the economy to a solid position:

·         The new government

·         Appointment of Dr. Raghuram Rajan as RBI governor

            Both the government and the RBI have (largely) worked hand in hand to revive the economy. The government, however, has warded off any modesty, crowning itself the self proclaimed architect of The Great Indian Economic Success Story. After all, how dare the “aam aadmi” expect humility from an Indian government?

            Contrastingly, the suave “Rockstar” Rajan took charge on 4th September 2013, and has transformed the RBI since. The former IMF Chief Economist was quick to work on the bleeding economy, ushering in several vital reforms. One of his key strategies was to devote monetary policy to a sole, significant ideal – a low and stable inflation rate.

            The hawkish “inflation warrior” got the ball rolling with a modification in deeply rooted fundamental policy: Based on the recommendations of a committee headed by Dr. Urjit Patel (the  incumbent RBI governor), the RBI adopted Consumer Price Index (CPI) as the key indicator of inflation. This was a long due reform, as the RBI previously used the Wholesale Price Index (WPI) to measure inflation. While the WPI is easily and quickly obtained, the CPI is much more relevant to consumers and is a more realistic indicator of inflation.

            The astute 54 year old had pulled all stops on the inflation front. His 3 year tenure had been characterised by an aggressive standpoint on interest rates, which is a key tool used by central bankers to offset growth and inflation. Dr. Rajan’s interest rates were evidently too high for the industry’s liking; his critics often censure him over his supposed indifference to drive growth. The unswerving banker, notwithstanding, stuck to his prized policy of a low inflation target. His belligerence glared in his policy, as he imposed 5 rate cuts and 3 rate hikes. Although rate cuts weren’t infrequent, they were grudgingly low. Consequently, retail inflation (CPI) dropped to 5.77% in August 2016 (as opposed to 11.24% in 2013), well within the RBI’s target of 4% with a leeway of 2%.

            Apart from curbing inflation, Dr. Rajan’s expeditions have resulted in other significant contributions as well. Post his exit, the Rupee has been stable and India’s forex reserves were at an all time high. India had also overtaken a slowing China to become the fastest growing major economy at 7.6%, having long quit the ranks of the fragile five. However, the former governor did concede that too much should not be read into the GDP, and has expressed scepticism over the processes involved in obtaining the same.  

            As for the banking sector, two new banks (IDFC and Bandhan bank) were licensed and 11 payment banks approved. Dr. Rajan had also set foot on the big ugly clean up of bank balance sheets. Several have considered this one of the banker’s paramount initiatives. The RBI has since provided banks with several tools to tackle bad loans. However, the massive $120 billion undertaking is still an unfinished agenda that now comes under the mandate of Dr. Urjit Patel.

            The intricate jargons of economics aside, Rajan has established himself as an intellectual public figure, something his predecessors failed to do. His candid commentary on social issues and government policies on public forums was unprecedented, at least in the context of our country. The canny academic never shied away from criticism and debate, initiating intriguing conversations ranging from intolerance to his infamous “dosa economics”. His unequivocal forthrightness and elegant oratory swept over several, while vexing quite a few (Dr. Subramanian Swamy in particular).


            All said and done, Dr. Raghuram G Rajan has departed Mint Street to return to what he considers his real home, academia and the “realm of ideas”. The Katherine Dusak Miller Distinguished Service Professor of Finance has resumed his work at the University of Chicago Booth School of Business. Dr. Rajan, popularly called the James Bond of Indian economics, will certainly go down as one of the finest and most dynamic governors the RBI has ever had, has been sorely missed at least for his eloquence, candidness and panache, if not for his revolutionary economic policymaking.

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Ram Smaran Suresh


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