Raghuram Rajan

Carry on Governor
(A MUST READ ARTICLE)
As a young boy studying in Delhi's prestigious Delhi Public School, R.K. Puram, Raghuram Rajan, when asked
what his ambition in life was, would say: "I want to be the Prime Minister of India". This when most kids of that
generation would answer either doctor or engineer.
A few decades later, there is very little Rajan has not achieved. Only 52, he is not only an Indian icon, but a global
one. He is called a "Financial Prophet" and a "Rockstar" in the same breath. His fan following is across the globe,
ranging from heads of states to young women who swoon at his very mention. What he says-or does not say-not
only moves stock prices on Dalal Street but also on Wall Street. He even has a fan page on Facebook with close
to a million "likes".
"I don't quite recall my ambition of being PM, but I do know that today my ambitions are far more realistic," says
Rajan, with a shy smile, in an inter-view to INDIA TODAY at the Reserve Bank of India headquarters in Mumbai.
The RBI has seen many governors with both, the highest intellect and integrity, but none as popular-not just in
India but globally. And perhaps none who speaks his mind with the courage of conviction and does so with an air
of confidence that surpasses his territory. To show the government and the powers that be, the mirror.
Be it questioning "Make in India" and instead suggesting "Make for India", or telling a room full of journalists the
"RBI is not a cheerleader", Rajan calls a spade a spade. And has the confidence to handle the back-lash,
knowing fully well there would be no dearth of organisations and institutions who would grab him the moment he
were to raise his hand.
His is a CV every young Indian dreams to have-a gold medalist at IIT-Delhi and IIM-Ahmedabad and a winner of
countless awards. And yet, despite his stardom, he is a man rooted to the ground. He values his integrity to the
point that he tells his college classmates that he won't be able to come over to their place if those invited include
bankers.
"The most amazing thing about him is his genuineness.

He has gone places but even now you meet the same Raghu as he was back in college. Extremely warm," says
the CEO of a leading company who was Rajan's classmate at IIM-Ahmedabad. Rajan spends a lot of time with
his family when he can and is particularly close to his brother Mukund, who is the brand custodian and chief
ethics officer of the Tata Group. Integrity obviously runs in the family.
He is also seen at malls often, buying groceries over the weekend. He retains his email id from the Booth School
of Business, University of Chicago, where he taught before he came back to India in 2012. He married his IIM
classmate, Radhika Puri, who is now a Lecturer in Law at University of Chicago Law School.
But few know Rajan's return to India was not an accident. It was not about power and holding a position of
authority. He needs no official position to wield authority.
Years ago he had decided not to opt for an American passport, because, as he told a friend:
"One day I want to go back to India and contribute to public policy in my country. I must therefore retain my Indian
passport." Even as a young man while he was making waves with his lectures, predictions and economic
theories, Rajan's heart was set on returning to his country someday. His wish was to come true.
HOMEWARD BOUND
In 2007, Prime Minister Manmohan Singh was chairing a meeting that included then Finance Minister P.
Chidambaram, then Deputy Chairman of the Planning Commission Montek Singh Ahluwalia, the PM's Economic
Advisory Council Chairman C. Rangarajan and bureaucrats from the finance ministry.
Even as they got down to discussing financial sector reforms, one of those present remarked how once the
economics stalwarts gathered around the table fade into the sunset, India would not have a strong economic
mind in public policy. Unlike in the US, India had failed to bring bright academics into public policy and there
would be a vacuum once the four wise men at the table had finished their innings, it was suggested.
The suggestion resonated with Singh. He asked for Rajan to attend the next meeting. Once the meeting was over,
an impressed Singh is learnt to have said: "We should bring him to India so he can begin to wet his feet in Indian
waters." Rajan was asked to prepare what is now called the Rajan Committee report on financial sector reforms
titled "100 small steps". "He worked very hard. He would finish his class in Chicago and take the flight out to
India.
He would head straight to meet-ings and once done head to the air-port and make it back in time for the Monday
class," says a bureaucrat who worked closely with Rajan then. After a stint as an external advisor to the PM
followed by a year-long innings as chief economic advisor, Rajan took charge as RBI governor in September
2013.
His task was cut out. Inflation had spiraled out of con-trol and the rupee was near Rs 70 to the dollar. Then
Finance Minister P. Chidambaram, who shared a very good equation with Rajan and treated him as "an equal",
was simultaneously fighting the battle of bringing the economy back on its feet.
The two together succeeded in taking several decisions that led to staving off the threat to the economy. No
sooner did the Narendra Modi government come to power, rumours of Rajan, a UPA appointee, being shown the
door grew louder every day.
His decision to not cut interest rates as swiftly and sharply as the government would have liked him to, made him
unpopular with the finance ministry. But then every RBI governor in recent memory has had an issue with the
government, especially on the pace of interest rate cuts. His not being from the "tribe", has seen him battling the
bureaucracy, with some wins and some terrible losses too.
"He is not a part of the tribe. Unlike his predecessors who had either themselves cut their teeth in the civil
services or had a deputy who had done so. He had the choice, but I think he prefers to not be part of the tribe,"

says a bureaucrat. Take for example the visit to the annual World Bank and International Monetary Fund (IMF)
meetings as part of the Indian delegation. With Finance Minister Arun Jaitley indisposed, the natural choice to
lead the delegation would have been the RBI governor, who enjoys a minister of state rank.
But it was then Finance Secretary Arvind Mayaram who led the delegation. This reportedly prompted the RBI to
even send a letter to the government seeking a cabinet minister rank for the governor. It has not been agreed to.
Rajan is still governor but Maya-ram has since been moved out to a low-key ministry.
IN STEP WITH MODI
Rajan also ended up picking issues with the government on the extent of dividend the RBI should pay it. Once
again, the bureaucracy insisted it was for the government to decide the amount and not for RBI.
Eventually, RBI did give what the government wanted. More recently, the government had to beat a hasty retreat
on its proposals pertaining to the Public Debt Management Agency that sought to manage government debt in
the form of government securities and bonds.
This is handled by the RBI. The government also wanted to hand over the regulation of debt market to capital
market regulator Securities and Exchange Board of India (SEBI). Rajan's concerns were not so much with the
broader principle but with the eventual process that would be followed and the autonomy the RBI would enjoy.
Like his predecessors, Rajan is fiercely protective about the autonomy of the RBI, one of the very few credible
and respected institutions India has.
A recent proposal by the RBI to appoint a chief operating officer of the rank of deputy governor too is awaiting
government approval. Rajan's attempts to usher in dramatic change in the functioning and structure of RBI to
bring it in sync with global best practices have been resisted so far. Even within RBI there is a certain sense of
resistance to big bang reforms and change.
"The ghosts of the Harshad Mehta scam still resonate at RBI. The fear of being left to the wolves when the chips
are down still makes the rank and file very cautious and hence while one has seen lots of incremental steps by a
Rajan-led RBI, you have not yet seen the big bang reforms," says a government official. "Rajan is a practical man.
He knows which battles to pick and when to back down."
It is perhaps this quality that has resulted in him enjoying the support of Prime Minister Modi. Rajan is completely
aligned to the vision of the strongest Indian PM in three decades. Modi believes in infrastructure explosion and so
does Rajan.
Modi believes in big bang banking sector reforms, so does Rajan. Modi believes in a stable rupee, so does Rajan.
Modi believes in a major thrust on manufacturing, so does Rajan. Modi wants inflation to be reined in, so does
Rajan, who has picked slaying the inflation demon as his big agenda. Modi wants financial inclusion, so does
Rajan.
Modi wants to encourage entrepreneurship, so does Rajan.
Within this broader alignment of vision, Rajan does from time to time show the mirror to some initiatives of the
government. For example, he questioned the "Make in India" slogan and suggested "Make for India" not because
he is opposed to manufacturing growth in India.
He was only cautioning not to follow a totally export-led strategy that had caused extreme economic pain to many
countries in the past, and instead look at India as a big consumption economy. In the same breath, he has also
acknowledged the good work done so far by the government and has highlighted the fact that expecting dramatic
change is being unrealistic.
Being critical is fraught with risk, as this government is more sensitive to criticism. But if he has been critical, he
has balanced it with being equally stoic in his strong defence of the government too.

And therefore to assume he is not in sync with the government and is on a constant warpath with it is a
completely wrong reading.
It is instead merely his way of saying there is a better way of achieving the same goal. And which may well be
why Modi has backed Rajan to the hilt.
At the 80th anniversary celebration of the RBI, Rajan chose to address the audience in Hindi in the presence of
Modi. Modi on his part gave a big pat on the back to Rajan, saying he is a great teacher and he enjoys his crisp
presentations. Modi perhaps knows Rajan's value and as long as it is in line with his own vision, he would back
him.
MAN FOR ALL SEASONS
Rajan has his fair share of critics too. "While Rajan has scored a big win by signing the Monetary Policy
Framework Agreement, that establishes for the first time in RBI's history, a specific inflation target, his stand on
PDMA (Public Debt Management Agency), or on Uber's cashless innovation or on him opposing voting in a
Monetary Policy Committee which would improve decisions, is something one did not expect from someone who
had been brought in to change this very mindset of RBI," says
Ajay Shah, an economist and professor at the National Institute of Public Finance and Policy (NIPFP).
Rajan is a communicator par excellence and is clear in his mind that RBI needs to not just make great policy but
also articulate it. To that extent he has taken the role of the RBI to a completely different level and that has made
him a popular governor. And perhaps even more unpopular with the bureaucracy.
As he enters his third and perhaps final year as governor-unless he gets a second term-Rajan has many
challenges ahead.
For one, the likelihood of a failed monsoon and an increase in inflation would severely cramp his attempts to
boost growth by further cutting rates. Moreover, any spike in oil prices that Rajan says "worries" him, could negate
all the economic benefits India has reaped following a more than 50 per cent crash in global oil prices.
He has to continue to give a big push to cleaning up rising NPAs (non-performing assets) in the banking sector
and work closely with the government to bring a robust bankruptcy legislation and tackle the impaired balance
sheets of PSU banks by recapitalising them. To that extent, forging a close working relationship with the
mandarins in North Block will be a necessity and challenge for Rajan.
He also has to push through reforms in facilitating payment banks and throwing open doors to more banks,
including foreign ones, to make the banking sector more competitive and widespread.
"Not only is he someone who knows his subject, he is also someone who is constantly learning and is a very
balanced person," says Ashima Goyal, an economist and professor at Indira Gandhi Institute for Development
Research (IGIDR) and a member of RBI's Technical Advisory Committee.
"Let us not forget how fragile our currency was when he took charge and what he did to bring stability to it. He
knows what he has to do going ahead." Rajan has been trying to bring change to the RBI too. Being someone
who endears himself to people across ranks helps. "Sir comes to office every day by 8.45 am after his gym and
run," says the lift attendant at RBI headquarters. "It is not just me but the entire RBI staff that will ensure no harm
comes to our governor," says a security officer on the recent threat to Rajan's life.
"He just walks into our room sometimes and chats on any issue. We have never known such a friendly and
candid governor," says an executive director and an old RBI hand.
AN ALL-ROUNDER
He works hard. And works fast. Within days of taking over, Rajan picked his IIM classmate and banker Nachiket

Mor, now a member of the RBI's central board, to come up with ways to cover small businesses and low-income
households.
The Mor committee came up with the concept of "payment banks" with an initial capital of Rs 50 crore, one-tenth
of what a full-service bank requires, that would only accept deposits and not do any lending.
On his very first day in office, Rajan had talked about a new approach to formulating monetary policy. The same
month he picked Deputy Governor Urjit Patel to examine monetary policy framework.
Rajan's two biggest successes have been his persistent attack on inflation and stabilising the rupee that had
spiraled out of control at the time he took charge. But bringing in greater competition among banks by throwing
open the field, or ushering in big bang mobile payment reforms, or cleaning up the banking system of its
ballooning non-performing assets by reigning in big defaulters, are still works in progress.
Shortly before Rajan graduated from IIM-Ahmedabad, one of his batchmates wrote that he would earn a slot in
the Guinness Book of World Records for the world's thinnest book: 'Games I haven't played'. His father R.
Govindrajan, a former RAW officer now settled in Chennai, laughs as he recalls this tribute to his son's all-round
versatility. "He was willing to try out everything that intrigued him," he says. "Raghu was not just a bright student
but an all-rounder, from quiz contests and debates to sports."
Such talent is always rare to find. Manmohan Singh may well have brought him back to India but Narendra Modi
may do well to nurture him and preserve his talent. For India.