NEW DELHI — At a time when India’s currency is plunging and its economy is in a downward spiral, a renowned economist has taken charge of the nation's central bank. The new governor faces an uphill task in restoring faith in both the country’s currency and its economy.
The new head of India’s central bank, Raghuram Rajan, is a former chief economist at the International Monetary Fund who is well known for having predicted the 2008 global financial crisis two years before it sent shock waves around the world.
As he takes over his new assignment, India is also in the midst of a financial storm. The nation's currency, the rupee, has lost nearly twenty percent of its value this year against the dollar. Several banks have slashed growth forecasts for this financial year to four percent. That is down to half the growth rate in 2008 and even lower than the decade-low five percent rate posted last year.
Expectations about the new governor are high as India looks for a way out of its economic downward spiral. The academic was chief economic adviser in the Finance Ministry before coming to the central bank.
A. Prassana, chief economist at ICICI Securities in Mumbai, said Rajan’s priority will be to stabilize the currency.
“It is difficult, because the problems are of a fundamental nature. But he is pretty much clued on to things like financial stability, which clearly have become a big factor," said Prassana. "Here there is a person who was thinking about these things much before they became fashionable.”
Experts said restoring faith in India’s currency will not be easy. The plunging rupee is a sign of an economy in trouble on several counts: the country is running a high current account deficit which means its exports, measured in dollar earnings, add up to less than its imports.
Manufacturing has slowed. High inflation has curtailed consumption. And as growth plummets, investors are losing confidence. As in other emerging markets, they are pulling out funds and putting them in the United States, where the economy is reviving.
Analysts said a turnaround will depend on the government’s willingness to press ahead with key reforms to attract investors - a step Rajan strongly supports.
The new central bank chief has cautioned that there are no “quick fixes.” When his appointment was announced last month, he acknowledged the challenges the nation faces. “We do not have a magic wand to make the problems disappear instantaneously, but I have absolutely no doubt we will deal with them,” he said.
That is what many in India are hoping as concerns grow about the ailing economy.