The first time I met Raghuram Rajan, the Indian economist couldn’t sit still.
It was over coffee in Bangkok in November 2008, less than two months after Lehman Brothers Holdings Inc imploded and almost took the global financial system down with it. Rajan had become a big draw by then, having warned as early as 2005 that a crash was coming. On that day in Thailand, he had a more local crisis on his hands: The hotel’s WiFi was out.
“I’ll be back — I need to make a call and make sure the world economy is still there before I begin my speech,” he deadpanned. “You never know.”
That last sentiment could also apply to an extraordinary bit of recruitment on the part of Indian Prime Minister Manmohan Singh. Rajan, 49, is one of his most pointed critics, never one to shy away from slamming India for trying the same failed policies over and over again. Rather than castigate Rajan, Singh offered him a job: top adviser to the Finance Ministry.
Rajan’s arrival might shake up India at just the right moment and accelerate recent moves to open retailing, aviation and insurance to foreign investment. Palaniappan Chidambaram’s return as finance minister in July might have seemed enough of a jolt.
He wasted no time in announcing policies that amounted to shock therapy for an economy that has lost its way. If those were a sign India is again open to business, hiring Rajan suggests it won’t stop there.
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He’s looking in exactly the right places from the start — modernizing the financial sector, making it easier for companies and entrepreneurs to do business, and tackling the labyrinthine distribution system in areas such as agriculture.
Rajan is a University of Chicago guy. It means that, at least to some extent, he’s about increasing economic efficiency as a means of raising living standards. Supply-side solutions can clearly go too far, as we saw when the US went off the financial rails thanks to lax regulations and oversight.
Yet if there is anything India needs, it is a burst of deregulation fever.
Among the most common phrases you hear uttered in India is “license raj,” shorthand for the baffling, elaborate and multilevel system of issuing permits to do anything.
William Pesek is a Bloomberg View columnist. The opinions expressed are his own