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Raghuram Rajan being attacked for fighting crony capitalism, says his Chicago University colleague

Raghuram Rajan's colleague and co-author Luigi Zingales defended him saying he was being attacked for "fighting the inefficiency of the banking system".

Raghuram Rajan, Rajan second term, RBI governor Rajan, Rajan Subramanian Swamy, Rajan for second term, Narendra Modi, Renew Rajan's term RBI Governor Rajan is on-leave Professor of Finance at University of Chicago Booth School of Business.

Coming to the defence of Raghuram Rajan, his Chicago University colleague and co-author Luigi Zingales has said the RBI Governor is being attacked for “fighting the inefficiency of the banking system” and for taking on the crony capitalists in the country.

Amid a high-decibel debate in India on whether Rajan will get an extension or not beyond his current term ending this September, Zingales said governorship earlier used to be “entrusted to grey bureaucrats that left no impact”.

“Rajan, however, is the dream of the new India: young, competent, and reached the top of the Indian central bank because of his skill, not because of his political alignment,” he wrote in an article.

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Rajan, a former Chief Economist of the IMF and an on-leave Professor of Finance at University of Chicago Booth School of Business, has been under attack from the ruling party BJP’s Rajya Sabha MP Subramanian Swamy, among others, for what they term as the RBI Governor’s failure to effect necessary interest rate cuts to boost the economy.

Zingales, who is Professor of Finance at the same school and has been Rajan’s co-author as well, said a central banker would have a “guaranteed re-confirmation” in any country in the world after managing to reduce “inflation from 11 per cent to 5 per cent while simultaneously enabling an increase in growth from 5 per cent to 8 per cent in just three years”.

Also Read| Debate on Rajan’s reappointment is welcome as long as it is on performance

While admitting that he may be “positively biased” as Rajan has long been his colleague and co-author, Zingales, termed the charges as absurd, including regarding his nationality, as he eulogised the RBI Governor on all fronts.

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“Rajan is also accused, due to belonging to the Group of 30, of being part of a ‘group set up to defend the US’ dominant position in the global economy’ and to serve the interests of international finance,” Zingales said, while adding that it was Rajan, who in 2005, in front of an enraged Alan Greenspan (then outgoing Chairman of Federal Reserve), denounced the potentially destabilizing effects of financial derivatives.

Pondering over the reasons behind “such anger” targetted at Rajan, he said the RBI Governor “is fighting not only inflation, but also the inefficiency of the banking system, burdened by bad loans”.

Also Read| Now, Rathore backs Raghuram Rajan, says RBI Governor doing a good job

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“The Indian banking system is mainly in public hands and was used to finance crony capitalism, which has held the country back for too many years. So far, Indian banks have lived in the illusion that all debtors would pay sooner or later, even when borrowers often borrowed from one bank to pay another.

“As Governor, Rajan has rightly decided to force the banks to cut down exposure to their most dubious borrowers, even at the cost of bringing out non-performing loans. From an economic point of view this is the best time. With the country growing at 8 per cent, these losses can be easily absorbed by the banking system.”

First published on: 12-06-2016 at 05:01:53 pm
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