Rajan did just what was the Need of the Hour

Everything seemed so sudden and confusing about Raghuram Rajan’s exit from the Reserve Bank of India. What went with the government and the RBI governor is still being debated in the media. Yet he did what was right and that is to address the inflation in India which usually hits the ordinary man on the streets quite high. The common man always suffers just with a little increase in prices and the same has to be addressed through monetary intervention. And that is obviously one of the most important jobs of RBI.

Apart from politics the interest rates aren’t too high and the rise in prices ought to be checked from the supply side. This means that monetary policies have their own limitations.  There is good news that the government has started to import food grains, pulses and lentils from the African nations. This is good as that would ensure price stability. This also means that the onus is on the government to reduce the price of essential commodities. This could be stretched to mining products too.

It is to be reasoned that in the short and medium term we may have deficit of trade with most African nations and some South East nations, but that is unavoidable at this juncture. Let that continue and here is the step that politics should get better hand than economics and there should be continuous engagement through our diplomatic routes with these nations so that raw materials for consumers and industries are imported without any hassles. In the long run, of course, we can create parity in trade despite the volatility of politics there.

This would be better if we were to demarcate and emphasize trade data continent wise helping the government to keep in mind the immediate imbalances that may exist especially with African and South East nations. This could be addressed by exports later.

Mr. Rajan did an exemplary job and one hopes that the decision to quit is his own. Perhaps, he may toying with the idea to be a full academic and who knows that we may soon find some great truths in economics brought to light in the course of his brilliant research career.

One of his most remarkable achievements other than containing inflation was his unique ability to stabilize the currency and helping banks to address their NPAs and not in least bringing about reforms in the financial sector which perhaps he may leave unfinished.