Rajan's wins at India's central bank hint at broader ambitions

[NEW DELHI] When Raghuram Rajan became governor of the Reserve Bank of India in 2013, the former International Monetary Fund chief economist vowed to shake up a central bank that had a confusing mandate and a dismal record of containing inflation.

Now, 18 months later and half way through his term, India is discovering just how deep Rajan's policy ambitions run. He's coming off a big win: On March 2, the Indian government publicly released an agreement that for the first time gives the central bank a legal mandate to target inflation.

But he's not just out to tame inflation or refocus India's central bank mandate on price stability. In speeches and interviews, Rajan sometimes sounds more like a chief government adviser than a central banker as he opines on everything from social inclusion to democracy.

"One of the greatest dangers to the growth of developing countries is the middle income trap, where crony capitalism creates oligarchies that slow down growth," Rajan said in a speech last year. "To avoid this trap, and to strengthen the independent democracy our leaders won for us 67 years ago, we have to improve public services, especially those targeted at the poor." All of which raises an intriguing question: Might Rajan someday jump in the raucous world of Indian party politics?

"I would not be surprised if the RBI governorship was not his last stint serving the government of India," said Milan Vaishnav, an associate in the South Asia program at the Carnegie Endowment for International Peace in Washington. "Whether he would make for prime ministerial material is hard to say."

Analysts and friends say his various policy interventions merely show passion for subjects that he has long cared about, rather than political ambitions.

"I don't think he is injecting himself into politics as much as he is injecting himself into broader discussions," said Wei Shang-Jin, chief economist at the Asian Development Bank in Manila who worked under Rajan at the IMF.

The RBI has produced one Indian leader in the recent past. Former prime minister Manmohan Singh, the Oxford and Cambridge trained economist who appointed Rajan, ran the central bank from 1982 to 1985.

BLOOMBERG