First impression: Why Rajan will strike a different chord

First impressions matter. And Raghuram Rajan made his first press conference, as RBI Governor, count. It helps that Rajan has been a Professor for most of his professional life. He has well honed communication skills and is unafraid to share information and knowledge, precisely the opposite instincts of career bureaucrats who spend a lifetime acquiring power through obfuscation and withholding information. In that, he will strike a different chord from most of his recent predecessors who have either been from the IAS (D.Subbarao, Y.V. Reddy) or have been economist-bureaucrats (Bimal Jalan, C.Rangarajan).

At his press conference, Rajan was crystal clear that he plans to bring transparency and stability to RBI’s monetary policy. Of course, he reserved the right to surprise markets - as he must to be an effective Governor.

What he really meant was that he will ensure that the rationale behind every RBI decisions is communicated clearly and consistently to citizens and market players. Transparency is something that has been sorely absent in the RBI’s monetary policy making which puts it out of sync with the best contemporary global practices in central banking. All eyes will now be on September 20, when Rajan unveils the first monetary policy statement of his tenure.

The academic in Rajan was also apparent in the careful preparation he has put into his first press statement. His three weeks as OSD in Mint Street have been fruitful. He was able to unveil a gamut of reformist announcements with the express confidence that there is consensus in the vast RBI bureaucracy on these issues. It is no small achievement to forge a consensus on market-friendly measures in any Indian bureaucracy, including RBI. Rajan was able to entirely liberalise from RBI control the setting up of new branches by commercial banks. He was able to liberalise currency buyback norms for exporters and importers. He gave an assurance that new banking licences would be given out in quick time, by January 2014. He even made a strong push for synergy between banks and mobile companies to roll out mobile banking. All this, and more, on his first day in the new office.

Rajan dropped more than one hint that he intended to end business-as-usual at the RBI. He was bold on non-performing assets stating that promoters did not have a ‘divine right’ to run their businesses if they were mismanaging them. That was a strong signal to public sector banks which tend to be lenient, for various reasons including political pressure, with powerful private sector players.

Of course, Rajan will need a lot more than virtuoso performances at press conferences to reform India’s moribund financial sector and an old fashioned monetary policy apparatus. That he has chosen not to be cautious at the start is a good sign. In the end, Rajan’s great advantage is that he is not of the system, by the system or for the system.

At 50, with a global reputation as a top-notch academic, Rajan has an alternate world he can, and will, return to in the future. He doesn’t need to make any messy compromises. He needs to just keep swimming against the tide.