Raghuram Rajan took charge as the Reserve Bank governor at a time when growth was slowing, currency was falling and confidence in the Indian market was abysmally low. He perhaps couldn't have come in at a more tough time. A year down the line, the chaos has been tamed what with the runaway slide of INR being arrested at 60-61 level against the dollar.
Without taking any credit away from the man-of-the-moment Raghuram Rajan, who completes one-year in office today, many argue whether he was also lucky in terms of the events – both domestic as well as global – that took place in the days after he assumed office.
Jahangir Aziz, chief economist at JPMorgan calls it more as baptism by fire.
Also Read: RBI Guv Rajan completes a year in office: Report card
When Rajan took charge, it is true that India was facing severe Balance of Payments crisis. With India’s current account deficit (CAD) narrowing to USD 7.8 billion in the April-June quarter of 2014-15 from USD 21.8 billion in the year-ago period, BoP is is lot healthier today. But Aziz says the UPA-II too must get credit for that. "Despite this being an election year, the government embarked on a path of tight fiscal consolidation, which was rather surprising," he explains.
According to him, Rajan deserves maximum credit for inflation targeting. He says this is perhaps India’s first big chance of breaking the inflation challenge. However, he cautions that rates at the moment are not high enough to meet FY15 inflation target. Plus, the deficient monsoon this year is also likely to have an impact on food inflation, he adds.
Aziz continues to remain worried on both food and core inflation. He says inflation will have a detrimental impact on medium-term growth. Core inflation, according to him, will take a hit when the nation goes for higher growth, which will be difficult to achieve without putting pressure on local resources.
On the currency front, he believes the rupee was getting major support from macro-economic stability.
Jim O'Neill, former chairman of Goldman Sachs Asset Management too says Rajan has been lucky in terms of external as well as internal factors (political – Modi coming to power) aiding him. However, he adds that in his one year, Rajan took some tough decisions – inflation targeting, and attaching more importance to CPI as the nominal anchor for monetary policy.
O'Neill believes that the Indian government must actively support Rajan's anti-inflation drive. He believes that the RBI governor must help India move to an era of lower and stable inflation.
According to O'Neill, India can achieve 6-7 percent growth in FY16 and has the potential to grow over 7 percent after FY16.
Rajan has in the past been openly critical of the US Federal Reserve, saying it doesn't care enough about how its policy actions might impact emerging markets. However, O'Neill, doesn't agree with Rajan. He said the US Fed first has to do what is right for the US market and then think about other economies. He further goes on to say that it is not the fault of the Fed that other economies have not developed their financial markets sufficiently.
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