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Rajan & Rupee

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What’s common between Raghuram Rajan, the new Governor of Reserve Bank of India, and Rajinikanth, the superhero of the South Indian cinema? For...

What’s common between Raghuram Rajan, the new Governor of Reserve Bank of India, and Rajinikanth, the superhero of the South Indian cinema? For ordinary folks, they are poles apart. But the Twitterati, obviously Rajini fans, have elevated Rajan to the level of superhero in real life for rescuing the rupee from further fall a la the celluloid hero who gallops to save the damsel in distress. Social sites are abuzz with all things Rajan – from his IMF stint to the smile that is supposed to be winning millions of hearts across the country. More importantly, he has established a rapport with every community in the economic and financial world by sending positive signals which have generated good vibes all around. As if the change of guard at RBI heralds a new era in the apex bank’s working, both markets and rupee have perked up.

On Thursday and Friday, rupee appreciated against dollar and bourses bounced back, cheering investors. Two days after Rajan took over, the rupee has continued to strengthen against the dollar, rising 77 paise on Friday to close at 65.24 per dollar, the highest level nearly in a fortnight. But still the Indian currency has to regain ground before one could say that the country is out of the woods. Then one could confidently say that Rajan effect is turning the economy around.

Though none can predict how soon it will be, surely his quick-fix measures have given fresh hope to investors and the India Inc that after all the economy is not going down the drain. Among the steps Rajan has announced are setting up of committees to cleanse the system. These include a panel on new bank licences, headed by former RBI Governor Bimal Jalan; another to improve monetary policy framework under Deputy RBI Governor Urjit Patel; etc. At the same time, Rajan has also unveiled a slew of reforms at the central bank focused on “protecting the value of money.” Apparently, his bold and fresh approach to money management in the troubled times has come as a shot in the arm to the economy and it is responding positively so far.

The question, however, being asked is can Rajan’s magic work in the coming days when our economic troubles are expected to pile up on account of oil imports whose prices are likely to rise if the US engages Syria in what it calls limited war to decimate President Bashar Al Assad’s chemical arms stockpiles? The real test for the new RBI Governor will be managing the resultant inflation, an issue that had pitted Rajan’s predecessor Duvvuri Subba Rao against the Finance Ministry and its bosses. Inflation versus growth and balancing it in an election year is not an easy task and it is going to be the biggest challenge for Rajan. Like Rajinikanth who exhibits superhuman qualities on the silver screen, can Rajan prove to be an extraordinary wizard?
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