September 8th, 2015
Image Source: blogs.wsj
On September 4, Raghuram Rajan, the current RBI governor, completed two years in office. In these two years, Rajan has garnered immense popularity as a central banker, especially for his strong determination and strict policies of fighting inflation. The Logical Indian goes through the achievements of Rajan as the RBI governor.
• Rajan is known for his primary focus on curbing inflation. His biggest achievement is that he successfully brought down retail inflation to 3.78% in July 2015 from 9.8% in September 2013 – the lowest since the 1990s. Wholesale inflation was down to a historic low of -4.05% in July 2015 from 6.1% in September 2013.
• In his first speech as RBI governor, Rajan promised banking reforms and eased curbs on foreign banking, following which Sensex rose by 333 points or 1.83%. After his first day at office, the rupee rose 2.1% against the dollar.
• Under Rajan, the RBI adopted consumer price index (CPI) as the key indicator of inflation, which is the global norm, despite the government recommending otherwise.
• India’s forex reserve is now stronger by about 30% than it was two years back. During the recent depreciation, Rajan said the central bank has forex reserves to the tune of $380 billion, which is a comfortable level, and would intervene if there was a need.
• Under Rajan, two universal banks have been licensed and eleven payment banks have been given the nod. This is expected to extend banking services to the nearly two-thirds of the population who are still deprived of banking facilities.
Despite most of his reforms and policies being lauded, Rajan has been criticized by some for being slow in cutting interest rates. Although his move might help in killing inflation once and for all on one hand, it increases the risk of a much bigger crisis of deflation on the other.
Prior to his current position, Raghuram Rajan was the chief economist at the International Monetary Fund from 2003 to 2007. He is also a professor of finance at the graduate business school at the University of Chicago. He is considered by many as one of the best central bankers in the world. Some experts have even said that Rajan should be awarded with the Nobel Prize in Economics.