A Conversation With: Chief Economic Adviser Raghuram G. Rajan

Rajan, whom I profiled in a recent story for The New York Times, took over as the chief economic adviser in India’s Finance Ministry last month. He has long been an adviser to Prime Minister Singh, and he is known in global economic policy circles for a paper he wrote on the growing risks in the financial system years before the collapse of Lehman Brothers, and for his work at the International Monetary Fund, where he was chief economist. Mr. Rajan is son of a former Indian diplomat and spent his early childhood abroad. He is a graduate of the Indian Institute of Technology, New Delhi; Indian Institute of Management, Ahmedabad; and Massachusetts Institute of Technology. We spoke about state of Indian economy; why he chose to return to the country now, after spending much of his professional career in the United States; and his fluency in Tamil, the language of his family, and Hindi. You have recently returned to India at a time when the government seems to have suddenly woken up to a sharply slowing economy. Where do things stand and where are things going? One of the things that foreign investors, and even domestic investors, tend to be mistaken about India is they get overly euphoric for a while and then they get overly pessimistic. You have to remember this a country of 1.2 billion and it has its own dynamic, it moves according to whatever evolves. But the underlying fundamentals over the medium term for a country like this are obvious to see. In terms of where will growth come from, it doesn’t need to come from a very fancy stuff like extraordinary innovation of one kind or another. Just getting people from agriculture into services and industry itself is growth. Second, the economic establishment in this country fully understands what needs to be done. Prime minister is one of few Ph.D. economists running a country. He has been clear on what needs to be done. And of course the new finance minister has been the old finance minister, and the older, older finance minister, and so he has a good sense [of what needs to be done]. It wasn’t for want of knowledge on what needed to be done that India slowed down. It was obviously because of lack of political, sort of, will. And I think that to some extent, when things were going swimmingly well, which they were till a year ago, you are growing at 8 to 9%, sometimes at 10, why would you think that you need to do more? You can focus on the other things that are more palatable to the population. Why did you want to come back to India now? A part of it was when the call comes, it’s very hard to say no. You feel that you have some duty towards the country. I feel I owe something to the country. Also, I think the chance of even having some small influence that helps, that is multiplied by 1.2 billion lives, it’s such immense opportunity and, of course, could be extremely rewarding if you can do even a small bit. You don’t have to have a grand vision of turning things around, I think that is sort of the recipe for frustration. In a speech you gave at the Indian School of Business in April, you said that Indian policy makers can often be hostile to new ideas and advice from outside experts. Do you feel that has changed or do you still feel that resistance? I think it varies by people. Some people are quite confident, I think willingness to listen is really a matter of confidence. You can’t be so superconfident in your abilities that you ignore what others say, and you can’t be so diffident in your abilities that you think that if they say something, you will be so taken in that you will do the wrong thing. When you are confident about your abilities and also fully aware of what you don’t know you are willing to listen to outside experts with the full sense that if you don’t find it worthwhile you will ignore it (…..)



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8 Responses to A Conversation With: Chief Economic Adviser Raghuram G. Rajan

  1. Professor Uziel Nogueira says: Raghuram G. Rajan has the right CV to influence India’s economic policy in times of profound structural reforms that have stalled. Even the US diplomacy stopped publicizing India as an economic counter weight to China. His stint at the IMF as chief economist is a valuable experience to be used in a powerful Asian country of 1.2 billion people. The main question is whether Raghuram Rajan can effectively influence economic policy in India. After all, chief economic adviser at the Finance Ministry is a nice bureaucratic tittle without any decision making power behind it. The only perk is a wonderful office at the Ministry of Finance in Delhi. My experience of 30 years in international economic circles tells me that Mr Rajan has two choices: (a) make a (rapid) move to an executive position, possibly as president of the central bank; (b) stay as an adviser attending seminars and writing position papers to the Minister of Finance. If Rajan is ambitious and decides for an executive position, he must get into politics. Normally, academic individuals with his profile hates political infighting. Now, if he decides to stay as an adviser at the Ministry of Finance, he’ll probably be bored and eventually return to his teaching position at the University of Chicago.

    Who knows? perhaps Rajan can surprise friends and foes and become an intellectual-political force to be reckon in India as the country moves into the 21st century.


  2. Palaniappan Chidambaram, the powerful minister of finance and senior leader in the Indian National Congress, has been a central figure in the recent flurry of economic measures pushed through by the government. His return to the Finance Ministry on the last day of July – he had previously served as finance minister from 2004 to 2008 – coincided with a new, more assertive attitude by a government that had been criticized for drift and ineffectiveness. Business leaders and economists have praised Mr. Chidambaram and Prime Minister Manmohan Singh for pushing through a series of tough measures, intended to correct India’s fiscal problems, including an increase in prices for diesel fuel and cooking gas, along with policies that allow more foreign direct investment in multi-brand retail, civil aviation, media, pensions and insurance. The measures have infuriated the political opposition and led to the withdrawal of Mamata Banerjee and her Trinamool Congress party from the governing coalition. Yet, for the moment, the government is still standing. Mr. Chidambaram recently sat down with Jim Yardley, Gardiner Harris and Hari Kumar for a wide-ranging discussion about the Indian economy, Congress party politics, corruption and the impact of foreign direct investment (…..)


  3. Sandeepan: You know its very difficult to survive in India if u speak up against corruption because your life can be ruined.Suddenly there will be no jobs for you and even if you qualify in interview all of a sudden they will call you and say we are sorry.Mails will stop coming.Weird stuff will happen in social networking sites etc…This is the first step.They monitor everyone, at least those who are very vocal or have international friend circle, because their image needs to be preserved..This Govt. is a tyrant, its all I can say. Whatever the Govt. is doing is for the interest of big foreign multinationals.The Govt. can make the already the rich even richer, but the middle class and the poor class people are suffering unbearably.


  4. Professor Uziel Nogueira says: The image of India in the western media — particularly the US-GB — is highly skewed in favor of the pro-western political leadership in power. Under the banner “the largest democracy in the world’ the appalling conditions of 3/4 quarters of the population and the intolerable levels of political corruption are totally ignored. This is the difference between the Indian model and the Chinese model. The latter works for the poor and is successful while the former works for the rich and is in trouble.

    India is the equivalent of the current debate in the US of the 1% versus the 99% played in a country with 1.2 billion people.

    Unless corruption — a by product of the political system set up to maintain the social and economic status quo — is dealt with effectively, India cannot become a world superpower as China is today.


  5. Mitra: Mr Nogueira, may I ask what you are smoking, Sir? The levels of corruption in China and India are similar (if you go by Transparency International’s rankings, for example) – in fact at least one top expert on China and India (Pranab Bardhan of UC Berkeley) believes that high level corruption is considerably worse in China. This would be understandable because irrespective of how high you are, in India, you are afraid of exposure in the media. In China, local officials pretty much act with something close to absolute power. If you say high levels of political corruption in India have been ignored – you certainly haven’t been reading the NYT or The Economist. Indian economic growth has worked for the poor- there is considerable evidence that economic growth has significantly benefited the average person in India- however Indian growth rates haven’t been as high as China (few countries growth rates have been) – consequently India remains a poorer country. Finally, in India, not just the leadership, but even the man on the street is often fairly pro-Western – does that offend you?


  6. Timothy F. Geithner, the United States Treasury secretary, returned to his childhood elementary school here in India on Tuesday before attending a day of meetings with Indian leaders and business executives. Both Mr. Geithner and his Indian counterpart, Finance Minister P. Chidambaram, gave the usual platitudes in a news conference about how their discussions were “fruitful” and “substantive.” And Mr. Geithner praised India for undertaking a series of important policy changes to ease restrictions on foreign investments in the country’s retail, media and airline sectors. “I think the reforms outlined by the government of India offer very promising paths to improving growth outcomes for the Indian economy,” Mr. Geithner said. “They will be welcomed around the world.” Investors have greeted the changes warmly, driving up India’s stock market and the value of its currency, the rupee. But India has yet to bury its long tradition of protectionism and socialist policies, so those changes have caused political tumult, leading one of the governing coalition’s biggest allies to leave the government and call for a vote of no-confidence. Since those who have railed against the latest policy changes have accused the Indian government of selling out to the Americans, Mr. Geithner’s praise is not likely to benefit the Indian government politically. But Mr. Chidambaram, never a jolly presence, nonetheless seemed pleased. Mr. Chidambaram said he had expressed some concerns to Mr. Geithner as well as to the Federal Reserve chairman Ben S. Bernanke, who joined Mr. Geithner in New Delhi, about the Federal Reserve’s new plans for monetary easing (…..)


  7. Professor Uziel Nogueira says: According to the NYT reporter ” Investors have greeted the changes warmly, driving up India’s stock market and the value of its currency, the rupee. But India has yet to bury its long tradition of protectionism and SOCIALIST POLICIES. ” Two contrasting results on the economy and politics in the two largest countries in Asia with a combined population of 2.4 billion people. In 60 years, India –the largest democracy in the world — maintains ‘socialist policies’ and the largest population (800 billion) of poor people in the world. China with the communist party in power and a capitalist system is close to eliminate poverty and has created the largest middle class in the world.

    Ergo, the communist political system in China is obviously superior to the democratic system in India in so far as eliminating poverty and fostering a middle class.


  8. Outside Bangalore’s last official landfill, the garbage trucks regularly lined up here for hours, their burdens putrefying in the afternoon sun. A stinking mountain of trash, the landfill has been poisoning local waters and sickening nearby villagers. Another dump site was in even worse shape before it was closed recently after violent protests. Bangalore, the capital of India’s modern economy and home to many of its high-tech workers, is drowning in its own waste. Last week, local villagers blocked the roads leading to the Mandur landfill on the city’s outskirts even as many of Bangalore’s trash haulers went on strike, saying they had not been paid in months. Some neighborhoods have not had trash pickups for nearly three weeks, and vast mounds of garbage are scattered through what is known in India as the Garden City. Trash is India’s plague. It chokes rivers, scars meadows, contaminates streets and feeds a vast and dangerous ecosystem of rats, mosquitoes, stray dogs, monkeys and pigs. Perhaps even more than the fitful electricity and insane traffic, the ubiquitous garbage shows the incompetence of Indian governing and the dark side of the country’s rapid economic growth. Greater wealth has spawned more garbage, and the managers of the country’s pell-mell development have been unable to handle the load. “Bangalore used to be India’s cleanest city,” said Amiya Kumar Sahu, president of the National Solid Waste Association of India. “Now, it is the filthiest.” Bangalore’s garbage crisis grew directly out of its stunning success. Technology companies started settling in Bangalore in the 1980s. As they grew, many created pristine campuses hacked out of urban chaos, supplying their own electricity, water, transportation and a rare sense of tranquillity. But the dirty secret of these campuses and the gated enclaves where their executives built their houses is that they had nowhere to put their trash. Many hired truckers to take the mess out of the city, careful not to ask where it went. The truckers found empty lots or willing farmers and simply dumped their loads. The city soon followed the companies’ lead. Its door-to-door trash pickup program, started in 2000, was seen as a model in a country where comprehensive municipal trash systems are still rare. But few — including city officials — knew where the trash was taken or, after landfills opened, how it was disposed of. “We never followed scientific landfill practices,” Rajneesh Goel, Bangalore’s chief civil servant, said in an interview. As Bangalore’s population exploded with the success of its technology industry, the stresses in the waste system came close to a breaking point. Now, with Bangalore’s last landfill here in Mandur about to close permanently and the city running out of abandoned quarries to quietly divert a day’s load, the system may simply collapse. “All that groundwater contamination is going to come to us; more than 300 of our lakes are already gone,” Dr. Goel said at a recent public meeting where he pleaded for help. “The problem is getting out of hand, and eventually it will swallow us up. We have to do something” (…..)



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