Raghuram Rajan takes over as RBI governor

Raghuram Rajan, chief economic advisor in the finance ministry, has taken over as the 23rd governor of the Reserve Bank of India (RBI), after Duvvuri Subbarao completed his five-year term.

A former chief economist with the International Monetary Fund (IMF), Rajan brings to RBI a vast experience gained at the IMF and at the finance ministry.

Rajan, 50, who was appointed chief economic advisor in the finance ministry in August last year, will, however, have a tough time battling the rapid fall of the rupee and the central bank's policy discord with the finance ministry.

Rajan, who has taken his plunge at Mint Road, has already said that he has no magic wand to face the challenge before the country but would deal with them one at a time.

"We have enough ideas. It is not just the currency, it is financial inclusion, it is growth. I think there is a lot to do. There are challenges in the economy... These things are not going to be overcome overnight. There is no magic wand. But there are undoubtedly solutions to many of the problems that the RBI can tackle and the job is to go ahead and do it.

"We will do it one step at a time. Make sure that it progresses every day," he told reporters on Monday, his last day of office at the finance ministry.

Known for his frank views, Rajan has the distinction of having foreseen the 2008 global financial crisis as far back as in 2005, when he delivered a lecture on a looming financial crisis at a global economic conference.

Rajan has been cautious not to give clues about his intentions to market speculators. Economists, however, expect him to hold fire until at least till the US Federal Reserve announces a shift in its stimulus programme when it meets on 17-18 September.

Rajan's assumption of office at Mint Road comes at a time when the Indian rupee has plunged over 20 per cent so far this financial year. The rupee's plight exacerbates the country's worst economic crisis since 1990-91.

While the RBI under Subbarao has been overly cautious of the ill-effects of unchecked inflation on the economy, the government did precious little to address the real problems like the widening current account deficit and the fiscal deficit – India has the world's third-largest current account deficit of about $90 billion.

While it remains to be seen how Raghuram Rajan fights the economic storm and defends the currency, the cool, level-headed University of Chicago economist has raised prospects of out-of-the-box thinking at the central bank.