Meet Raghuram Rajan - Our next RBI Governor

Raghuram Govind Rajan, the country's chief economic advisor to the Finance Ministry, will take up the mantle of governorship from the Reserve Bank of India from D Subbarao, who will demit office in September this year.

 Raghuram Rajan was born to an Indian diplomat in Bhopal in 1963. Till his 7th class he was abroad and then studied his rest of schooling in Delhi. In 1985, he graduated from the Indian Institute of Technology, Delhi with a bachelor's degree in electrical engineering, and he completed the Post Graduate Diploma in Business Administration at the Indian Institute of Management Ahmedabad in 1987. Rajan was a gold medalist in IIT Delhi and IIM Ahmedabad. He received a PhD in management from the Massachusetts Institute of Technology (MIT) in 1991 for his thesis titled "Essays on Banking". He was awarded the distinguished alumni award by IIM Ahmedabad in 2005, and was also conferred the prestigious Durga Shankar Memorial award by the institute in 2012.

 

After graduation, Rajan joined the Booth School of Business at the University of Chicago. He was then appointed as the youngest-ever Economic Counselor and Director of Research (chief economist) at the International Monetary Fund (IMF) from October 2003 to December 2006. In 2003, he was also the inaugural recipient of the Fischer Black Prize awarded by the American Finance Association for contributions to the theory and practice of finance by an economist under age 40. The Center for Financial Studies (CFS) has awarded the 5th Deutsche Bank Prize in Financial Economics to Raghuram G. Rajan for his highly influential contributions in a remarkably broad range of areas in financial economics.

 

In 2005, at a celebration honoring Alan Greenspan, who was about to retire as chairman of the US Federal Reserve, Rajan delivered a controversial paper that was critical of the financial sector. In that paper, "Has Financial Development Made the World Riskier?", Rajan "argued that disaster might loom." Rajan argued that financial sector managers were encouraged to

(take) risks that generate severe adverse consequences with small probability but, in return, offer generous compensation the rest of the time. These risks are known as tail risks. But perhaps the most important concern is whether banks will be able to provide liquidity to financial markets so that if the tail risk does materialize, financial positions can be unwound and losses allocated so that the consequences to the real economy are minimized.

The response to Rajan's paper at the time was negative. For example, former U.S. Treasury Secretary and former Harvard President Lawrence Summers called the warnings "misguided" and Rajan himself a "luddite". However, following the 2008 economic crisis, Rajan's views came to be seen as prescient; by January 2009, The Wall Street Journalproclaimed that now, "few are dismissing his ideas." In fact, Rajan was extensively interviewed on the global crisis for the Academy Award winning documentary film "Inside Job".

 

In November 2008, Indian Prime Minister Manmohan Singh appointed Rajan as an honorary economic adviser. That same year, a high-level committee on financial reforms, headed by Rajan, submitted its final report to the Planning Commission.

In April 2009, Rajan penned a guest column for The Economist, in which he proposed a regulatory system that might minimize boom–bust financial cycles. In 2010, he was featured on Foreign Policy magazine's FP Top 100 Global Thinkers, and again in 2012. In a 2011 poll in The Economist, Rajan was ranked by his peers as the economist with "the most important ideas for a post-crisis world".

 

Replacing Kaushik Basu, Rajan was appointed as Chief Economic Advisor to the Ministry of Finance, Government of India on 10 August 2012. He also prepared his very first Economic Survey for India for the year 2013-14, on the 27th of February. On August 6 2013 it was announced that Rajan would take over as the next RBI Governor of India. He is member in the Group of Thirty. He has been appointed RBI Governor for 3 years. Current RBI Governor D- Subbarao"s Term ends on 4th September 2013.