Line of Credit


Mark Bergen on Raghuram Rajan, in his new role as head of India's central bank, in Caravan:

With the currency commanding unprecedented attention and talk of another 1991 growing louder, Delhi took action. According to several people working with the finance ministry, RBI officials were summoned to North Block with unusual frequency—and on 15 July, the central bank intervened.

The RBI initiated a series of dramatic measures to drain liquidity from the market and defend the battered rupee. The moves were abrupt, haphazard, and ineffectual: as the central bank fumbled from strategy to strategy over the following month, the rupee kept tumbling.

Close observers of the Indian economy have many disagreements—over why growth stalled, who is to blame, and what must be done—but here they reached a consensus. A chorus of former officials, economists and investors told me that the RBI had been strong-armed by a politically anxious finance ministry. The liquidity moves came as an utter surprise to the Technical Advisory Committee (TAC), a seven-member body that counsels the central bank, two of its members said. The bank’s public statements were sporadic and clumsy, uncharacteristic of the then RBI governor, Duvvuri Subbarao—solid evidence, one person with close knowledge of the RBI told me, that its hand had been forced by the government.

In Indian financial circles, where the RBI was seen as the sole government institution whose credibility had remained intact, the feckless moves that began in July signaled that its credibility was unravelling.

If those exaggerated anxieties have since been reversed, the turnaround began on 6 August, when the flailing government surprised its fiercest critics by naming Raghuram Govind Rajan as the next head of the central bank. Rajan, a distinguished professor at the University of Chicago’s Booth School of Business, had been hailed as “the oracle of the financial crisis” for his prescient warnings three years before the 2008 collapse. He had spent the past year as the government’s chief economic advisor, a post that many presumed was a brief stopover on his way to Mint Road.

More here.