New Delhi: Chief Economic Advisor Raghuram G Rajan, who as IMF economist had predicted the 2008 global crisis, was Tuesday appointed the new RBI Governor.
Rajan, 50, will succeed D Subbarao, who by his hawkish policy stood his ground on continuing with a tight monetary policy despite repeated entreaties from the government to ease interest rates to boost growth. Subbarao will demit office on September 4.
"Prime Minister Manmohan Singh has approved the appointment of Dr. Raghuram Rajan as the Governor of Reserve Bank of India (RBI) for a term of three years, vice Dr. D. Subbarao upon completion of his (Dr. Subbarao's) tenure," an official release said.
Rajan, a former IMF chief economist, was appointed as the Chief Economic Advisor in the Finance Ministry in August last year. His appointment as the 23rd central bank chief comes at a challenging time, when the economy is battling industrial slowdown, declining rupee, rising prices and all-time high current account deficit (CAD).
"These are challenging times for the Indian economy and the RBI and government will work together," Rajan said in a statement shortly after the announcement. "We don't have a magic wand to make the problems disappear. But absolutely we will deal with them."
Rajan noted that the RBI has a tradition of integrity, independence and professionalism.
Known for his frank views, Rajan was acclaimed for predicting the 2008 global financial crisis. In 2005, Rajan had delivered a lecture severely critical of the financial sector and argued that a financial disaster might be looming.
Rajan, who was honorary economic advisor to the Prime Minister earlier, is an alumni of IIM-Ahmedabad and IIT-Delhi. He had replaced Kaushik Basu as Chief Economic Advisor in the Finance Ministry last year.
He did his doctorate from the Massachusetts Institute of Technology. He was professor at the University of Chicago's Booth School of Business before taking over as CEA.
Rajan was also involved with the report on Financial Sector Reforms, which was authorised by the Planning Commission.
His appointment was generally welcomed by economic administrators and the industry.
"Rajan will make an excellent Governor at the moment" as he has been dealing with the problems in the last one year, said C Rangarajan, Chairman of the Prime Minister's Economic Advisory Council (PMEAC) and a former RBI Governor.
Planning Commission Deputy Chairman Montek Singh Ahluwalia said Rajan was coming in at a tough time but he has a terrific academic and professional background.
"It's a very tough time, we need someone who can give direction...The important thing is giving leadership for the next five years on how should the Indian financial system move. I think Rajan will be the best person to do that," he said.
Adi Godrej, industrialist and former CII president, welcomed Rajan's appointment, saying his experience globally and as CEA in the government would stand him in good stead.