Major Challenges for Mr Raghuram Rajan the new Central Banker in India

North Block vs. Mint Road

The home of Union Finance Ministry in North Block and the RBI HQ on Mint Road will have much more communication in the coming days. After the new RBI chieftain steps in with Himalayan tasks his prime duty should be satisfying the North Block which is answerable to the general public at many fronts. The political circle in Delhi never comes under the jurisdiction of the RBI chief and they may not be interested in understanding the worries of common man. So the toughest task will be keeping the balance between Finance ministry and RBI

Strengthening Rupee

Uplifting a currency which has gone down by 12% in the current financial year can’t be defined just as a tough task instead this is an uphill task. This depreciation does not purely depend on country’s internal and the external issues are not in the control of policymakers as well. The massive stimulus withdrawal has put not only India but all the emerging economies growths at stake. The RBI chief is not a policy making authority and he can’t design or execute programs which inject liquidity into the system. Various issues like dependence on foreign energy, the invasion threat from China, exports and imports, broadening of tax polices, infrastructure program are not at his say.

Curbing Inflation

Mr Raghuram Rajan who was the chief advisor to the Finance Minister has performed the duty of the Chief Economist of IMF is the man who predicted the economic crisis of 2008 way back in 2005. In 2012-2013 the fiscal deficit was slashed down to 4.9 % of GDP from 5.8% of GDP in 2011-2012 by the Finance Minister. Until May 2013 this plan was functioning well by stabilizing rupee, controlling inflation, and even an RBI interest rate cut was boosting up industrial segment. An extra $20 billion was invested in Indian equities but the slowdown in QE easing by Fed Chairman made everything go wrong. Raising the interest rates is a solution but the slow growth of the economy may not support the high interest rates especially the business establishments. Recently The Confederation of Indian Industry has demanded again fro interest rate cut from RBI. How new RBI chief will execute his plans to halt the inflation is a question.


More Bank Licenses

Opening new banks and starting branches all over the country and eventually lowering the percentage of assets which banks have to hold in government securities. This is another challenge and this plan may have severe consequences for farmers and small to medium – sized business. The main challenge lies in the risk behind finding proper banks.

In the press conference Mr Raghuram Rajan cleared his intentions by telling. “Some of the actions I take will not be popular. The governorship of the central bank is not meant to win one votes or Facebook ‘likes.’?” This proclamation itself is an indicator for his reformative plans.