As Duvvuri Subbarao demits office on Wednesday after a 5-year stint at the helm of the Reserve Bank of India (RBI), and high-profile IMF economist and chief financial adviser Raghuram Rajan steps in, the macro-economic situation welcoming them is somewhat similar.
Within days of moving to Mint Street in Mumbai in September 2008 from the North Block where he was finance secretary, Subbarao faced a crisis situation with the emerging financial meltdown, the worst since the Great Depression of 1930s.
Rajan also inherits an economy with a record current account deficit, a currency that has lost 20% against the dollar this year and annual growth at its weakest in a decade at 5%.
While Subbarao is known for the tough monetary stand that he took during the last one-and-a-half years when inflation was rising on one hand and economic growth stumbling on the other (under his leadership, the RBI raised policy rates 13 times between March 2010 and October 2011), Rajan has, not hinted at any policy stance. In fact, he has cautioned against expecting too much from his appointment, saying there are no “quick fixes”.
“No one can doubt the country’s promise. There is no magic wand to make the problems disappear instantaneously, Rajan had said in August.
He (Rajan) is in an unenviable situation,” said DK Joshi, chief economist, Crisil.
For the time being, Rajan will be forced to focus on stabilising the rupee by keeping interest rates high at the expense of spurring growth, analysts said.
However, since “today’s challenges relate to understanding global economic dynamics, Rajan has a big advantage in that department,” said Siddhartha Sanyal, chief India economist, Barclays Capital.
Rajan is known as a “creative, out-of-the-box thinker” which should stand him in good stead,” said Deepak Lalwani, head of India-focused financial consultancy Lalcap.
(With inputs from PTI/AFP)