Raghuram Rajan being attacked for taking on crony capitalists, says his former colleague


A former Chicago University colleague and co-author, Luigi Zingales, has come to the defence of Raghuram Rajan saying that  the RBI Governor was being attacked for “fighting the inefficiency of the banking system” and for taking on the crony capitalists in the country.

Rajan’s term expires in September and the issue of whether the Narendra Modi government will give him extention has gained considerable media interests in recent weeks.

An Indian pedestrian walks out of The Reserve Bank of India (RBI) building in Mumbai on April 29, 2008. India's central bank held key interest rates steady but hiked the percentage of cash banks must hold in reserve to 8.25 percent to curb inflation riding at over three-year highs.It was the second time the Reserve Bank of India had announced an increase in the cash reserve ratio (CRR) in two weeks as it seeks to suck out excess liquidity in the banking system and fight inflation now at 7.33 percent. AFP PHOTO Sajjad HUSSAIN
File photo

Zingales, according to PTI, said that the governorship earlier used to be “entrusted to grey bureaucrats that left no impact.”

“Rajan, however, is the dream of the new India: young, competent, and reached the top of the Indian central bank because of his skill, not because of his political alignment,” he wrote in an article.

Rajan, a former Chief Economist of the IMF and an on-leave Professor of Finance at University of Chicago Booth School of Business, has been under attack from the ruling party BJP’s Rajya Sabha MP Subramanian Swamy, among others, for what they term as the RBI Governor’s failure to effect necessary interest rate cuts to boost the economy.

Zingales, who is Professor of Finance at the same school and has been Rajan’s co-author as well, said a central banker would have a “guaranteed re-confirmation” in any country in the world after managing to reduce “inflation from 11 per cent to 5 per cent while simultaneously enabling an increase in growth from 5 per cent to 8 per cent in just three years.”

While admitting that he may be “positively biased” as Rajan has long been his colleague and co-author, Zingales, termed the charges as absurd, including regarding his nationality, as he eulogised the RBI Governor on all fronts.

“Rajan is also accused, due to belonging to the Group of 30, of being part of a ‘group set up to defend the US’ dominant position in the global economy’ and to serve the interests of international finance,” Zingales said, while adding that it was Rajan, who in 2005, in front of an enraged Alan Greenspan (then outgoing Chairman of Federal Reserve), denounced the potentially destabilizing effects of financial derivatives.

Pondering over the reasons behind “such anger” targetted at Rajan, he said the RBI Governor “is fighting not only inflation, but also the inefficiency of the banking system, burdened by bad loans”.