The Appointments Committee of Cabinet cleared the appointment of Rajan as the new CEA yesterday, sources said.
Rajan, known for his frank views, was also honorary economic advisor to Prime Minister Manmohan Singh. At present, he is a professor in the University of Chicago's Booth School of Business. He is also highly acclaimed for predicting the 2008 global financial crisis.
An alumni of IIM-Ahmedabad and IIT-Delhi, Rajan did his doctorate from Massachusetts Institute of Technology.
The position of the CEA has been lying vacant since Kaushik Basu's term ended on July 31. Basu would now return as a professor in Cornell University.
Rajan was also involved with the report on Financial Sector Reforms, which was authorised by the Planning Commission.