Imperatives for Reserve Bank of India - Agenda for Raghuram Rajan
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Case Details:
Case Code : ECON044
Case Length : 12 Pages
Period :2012-2013
Pub. Date : 2013
Teaching Note :Not Available
Organization : --
Industry : -
Countries : India
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This case study was compiled from published sources, and is intended to be used as a basis for class discussion. It is not intended to illustrate either effective or ineffective handling of a management situation. Nor is it a primary information source.
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Introduction
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On August 28, 2013, the value of the Indian rupee vis-à-vis the US dollar plummeted to a record low of INR68.80.The stock market took a plunge and on the same day, the BSE SENSEX touched an intra-day low of 17,720, down a whopping 13.6 % from January 2013’s high of 20,500. Foreign investors pulled out an staggering INR620 billion (USD10.5 billion) from the Indian capital market during June-July 2013 amid concerns over the depreciating rupee. Inflation in India had been running high at above 7% since December 2009; current account deficit had expanded to record levels (4.8% of GDP in 2012); and several projects were reportedly stalled due to policy bottlenecks.
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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.
Questions were, however, raised about 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 Rajan’s moves to see if he could contain the crisis in India and bring it back on growth path. The answer to this question was expected to matter not just to India but also to other emerging economies embroiled in a similar crisis.
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 (Rajan) was appointed as the 23rd governor of the Reserve Bank of India (RBI) on September 04, 2013, for a period of three years. The day after he was appointed, Rajan outlined a reform plan focusing on boosting investor confidence and stabilizing the falling rupee. As a result, the rupee and stocks strengthened.
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