Imperatives for Reserve Bank of India - Agenda for Raghuram Rajan

Abstract:s

ABSTRACT The case discusses the role of the monetary policy under the leadership of the Reserve Bank of India (RBI) Governor, Raghuram Rajan, to bring India out of the economic and financial crisis in which it found itself. In the fiscal 2013, India was faced with slowing economic growth, high inflation, a record high current account deficit, and the rupee hitting record lows. On August 28, 2013, the value of the Indian rupee vis-à-vis the US dollar plummeted to a record low of INR68.80.

In the first quarter (April-June) of the fiscal year 2013-14, India’s economy grew at its slowest in the previous four years and recorded a growth rate of 4.4%. In October 2013, the World Bank revised India’s economic growth forecast for the fiscal 2014 to 4.7 % against the earlier estimate of 6.1%. Experts pointed out that the Indian economic condition in 2013 was the worst since 1991.

At a time when India was facing its worst financial and economic crisis in decades, with slowing economic growth, high inflation, a record high current account deficit, and the rupee hitting record lows, Raghuram Rajan was appointed as the 23rd governor of the RBI on September 04, 2013, for a period of three years. The day after he was appointed, the rupee strengthened, winning accolades for him from around the world. Raghuram Rajan was labeled as a rock star governor.

The case analyzes the history of the RBI and the major monetary policy actions taken till date. It also studies the performance of the recent four governors of the RBI and the monetary policy stance adopted by them. Further, the case discusses Raghuram Rajan’s capacity to bring India out of its economic crisis, given that he had control over only the monetary policy. Economists and analysts kept a keen watch on his moves to see if he could contain the crisis in India and bring it back on the growth path. The biggest challenge before Raghuram Rajan was not to get labeled as India’s savior, because the country’s economic future was largely in the hands of its government, not its central bank.

Issues:

The case has the following objectives

»Analyze the history of the Reserve Bank of India (RBI) and its governors.
»Study the monetary policy adopted by the RBI.
»Examine the role of monetary policy and its governor in containing a crisis in a country like India.
»Study the agenda for RBI governor Raghuram Rajan and the monetary policy stance adopted by him.

Contents:

Keywords:

Monetary policy, Reserve Bank of India (RBI), Nationalization of the RBI, Cash Reserve Ratio, Inflation/ Average inflation, Chakarvarty Committee, Vaghul Committee, Narasimham Committee, Open Market Operations, RBI Governors, C. Rangarajan, Bimal Jalan, Y. V. Reddy, Duvvuri Subbarao, Raghuram Rajan, Inflation tageting monetary policy, Economic growth/ GDp growth, Food inflation, Banking sector reform, Current Account Deficit, Raghuram Rajan’s five pillars of financial reform

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