India looks to Raghuram Rajan for salvation

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RBI Governor Raghuram Rajan is facing a tough, ongoing balancing act of trying to stimulate growth while keeping inflation in check. RBI Governor Raghuram Rajan is facing a tough, ongoing balancing act of trying to stimulate growth while keeping inflation in check.
SummaryRajan's steadying voice of authority has given a boost to investor confidence.

and flying through air like a super-hero.

The "Rajan effect'' may be short-lived, however, since India's fundamental problems remain and he is limited mostly to the blunt instrument of setting interest rates.

Plus, Rajan himself wrote in a recent article that the true solutions for the economy are making it easier to do business in India by improving infrastructure, easing regulations that slow down investment, reducing subsidies for fuel and reining in double deficits in the national budget and current account. These are all tasks that are the responsibility not of the Reserve Bank, but of the central government.

Part of his task as India's rescuer-in-chief may be to leverage his reputation and popularity to try to persuade his counterparts in government to enact politically sensitive reforms, even as a looming election in May makes it particularly difficult.

"Given his status in the US and the world, he may indeed be able to influence the government,'' said Moody's economist Glenn Levine. "It may not be by a huge amount, because political realities will not shift, but the fact that he is a well-respected global economics professor may carry weight.''

Rajan reportedly has friendly relations with Finance Minister Palaniappan Chidambaram and met Tuesday with both him and Prime Minister Manmohan Singh ahead of Friday's policy review.

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