Rajan leaves India with a decrease in inflation and a good economic growth, he says, a feat not easy to achieve in any world market. Thus, Zingales feels, he is ideal as the president of IMF, a position mostly taken up by Europeans.
Incumbent Reserve Bank Governor Raghuram Rajan will leave his job after bringing under control inflation even as economic growth is high, says Luigi Zingales, finance professor at the University of Chicago.
Rajan and Zingales co-wrote the renowned bestseller Saving Capitalism from the Capitalists.
Speaking to CNBC-TV18, Zingales said Rajan was successfully able to clean the balance sheets of banks and expose all the bad loans that were given to close friends and politicians.
"That has cost him his job," he said..
If he wanted to continue as RBI Governor, he would have had to compromise on his principles, something Zingales feels Rajan would never do.
Going forward, Rajan is the ideal candidate for president of the International Monetary Fund (IMF), succeeding Christine Lagarde, he said.
Rajan was previously Chief Economist at the Fund before he took up role of India's Chief Economic Advisor, and later RBI governor.
Below is the verbatim transcript of Luigi Zingales's interview with Latha Venkatesh and Surabhi Upadhyay on CNBC-TV18.
Latha: Does it come as a shock to you that Governor Rajan has spurned an extension. Did you expect him to do that and rejoin you at Booth School so early?
A: No, I didn’t expect him to comeback so early. I was hoping that eventually he will come back, but it was a surprise to me that this happened so fast and with such a clear statement so early.
Latha: How would you rate his three years, his contribution in the past three years to India?
A: I think he really contributed to change the way that Central Bank was ran. His trying to make it more modern in the way interest rate are set through a open market committee like most advanced central banks, but most importantly he has really tried to clean up the bank balance sheet and expose a lot of bad loans. The part of the problem of Indian banks like the banks everywhere else in the world is that bankers make a lot of bad loans to their friends, so politically influential people and he tried to clean that up and that has cost him the job.
Surabhi: I was reading some comments that you have made to an Indian newspaper when Governor Rajan actually took off I am quoting from that article that was written three years you said that he is highly skilful in dealing with all kinds of people and in handling administration a remarkable quality that you don’t often find in an academic. You also went to say that let me tell you this that you cannot stereotype Raghu as a Chicago School guy at all. He is not overly focussed on that school of thought. Are you surprised then than despite of reading of him as being someone who handles people very well that this decision has come upon on us?
A: I think I am a bit disappointed rather than surprise. I think that the skill in manoeuvring, but is also a question of principle. He is super skilful, but also is very principle and he doesn’t comprises with his principles, so my reading of his decision not to run again is that he could not see continuing without compromising his principles and he chose to come back to Chicago rather than compromises his principles.
Surabhi: Some of the critics here at least painted him into being this person who has a very westernised concept when it comes to economic policy. He of course defended himself in an interview that he gave to us to our network saying in economics the principles don\\'t change, they are the same everywhere. It is demand and supply that really determines which way market goes. How would you describe him and how would you sort of respond to some allegations that were levelled against the governor that he is too westernised in his thinking, he is not suitable for India?
A: First of all I know him to be extremely devoted and passionate about his country and I think he is as Indian as he can be. Second he is right that some principles are the same around the world. And this issue of nationalist, I don\\'t know India very well but I do know Italy and many things unfortunately are the same and nationalists is used to cut out of power people who are competent and Raghu is very competent. He is trying to do a tough job and the only thing you can say against him is that he has spent many years abroad. If that is the best acquisition that you can get then bring it on.