Raghuram Rajan, whom I profiled in a recent story for The New York Times, took over as the chief economic adviser in India's Finance Ministry last month. He has long been an adviser to Prime Minister Manmohan Singh, and he is known in global economic policy circles for a paper he wrote on the growing risks in the financial system years before the collapse of Lehman Brothers, and for his work at the International Monetary Fund, where he was chief economist.
Mr. Rajan is the son of a former Indian diplomat and spent his early childhood abroad. He is a graduate of the Indian Institute of Technology, New Delhi; the Indian Institute of Management, Ahmedabad; and the Massachusetts Institute of Technology.
We spoke about the state of the Indian economy; why he chose to return to the country now, after spending much of his professional career in the United States; and his fluency in Tamil, the language of his family, and Hindi.
You have recently returned to India at a time when the government seems to have suddenly woken up to a sharply slowing economy. Where do things stand and where are things going?
One of the things that foreign investors, and even domestic investors, tend to be mistaken about India is they get overly euphoric for a while and then they get overly pessimistic. You have to remember that this a country of 1.2 billion and it has its own dynamic, and it moves according to whatever evolves. But the underlying fundamentals over the medium term for a country like this are obvious to see. In terms of where will growth come from, it doesn't need to come from fancy stuff like extraordinary innovation of one kind or another. Just getting people from agriculture into services and industry itself is growth.
Second, the economic establishment in this country fully understands what needs to be done. The prime minister is one of the few Ph .D. economists running a country. He has been clear on what needs to be done. And of course the new finance minister has been the old finance minister, and the older, older finance minister, and so he has a good sense [of what needs to be done]. It wasn't for want of knowledge on what needed to be done that India slowed down. It was obviously because of lack of political, sort of, will. And I think that to some extent, when things were going swimmingly well, which they were till a year ago, you are growing at 8 to 9 percent, sometimes at 10, why would you think that you need to do more? You can focus on the other things that are more palatable to the population.
Why did you want to come back to India now?
A part of it was when the call comes, it's very hard to say no. You feel that you have some duty towards the country. I feel I owe something to the country. Also, I think the chance of even having some small influence that helps, that is multiplied by 1.2 bill ion lives, it's such an immense opportunity and, of course, could be extremely rewarding if you can do even a small bit. You don't have to have a grand vision of turning things around, and I think that is sort of the recipe for frustration.
In a speech you gave at the Indian School of Business in April, you said that Indian policy makers can often be hostile to new ideas and advice from outside experts. Do you feel that has changed or do you still feel that resistance?
I think it varies by people. Some people are quite confident, and I think the willingness to listen is really a matter of confidence. You can't be so superconfident in your abilities that you ignore what others say, and you can't be so diffident in your abilities that you think that if they say something, you will be so taken in that you will do the wrong thing. When you are confident about your abilities and also fully aware of what you don't know you are willing to listen to outside experts with the full sense that if you don't find it worthwhile you will ignore it.
What are the two or three big things that you want to focus on while you are in this job?
I have to say these things are a team effort right from the top, with the central figures being the prime minister and the finance minister. But I do want to participate in this process of doing what I can to put India back on the strong-growth path, and I think that's something that can be done. That turnaround, whatever and whenever that happens, would be very, very satisfying for me.
On a more direct scale, two areas that I think we could do a lot more: one is improving our financial markets and financial institutions, which is my pet interest. And I think there is a lot that we can do that doesn't need to be grand but small, small changes that can make an enormous difference.
And the second is, I think India's medium-term future is moving people out of agriculture into industry and servic es. Services, you know, some extent we have a sort of a sense of what it takes. And India's service sector is disproportionately large for a country of its income. Where we have had less success is industry, and the question is can we sort of find a way to free the path for small and medium industry, and not just keep them forever as small and medium industries but allow them to grow into large industries.
So in other words, let's move away from small and medium-sized industry preferences, regulations that primarily target large industry, and move to more seamless regulation and also reduce the transaction costs of setting up these businesses and growing them. What buttons can be pressed to make it much more attractive to do business in India? What are the permissions that we can cut down?
Apart from fixing infrastructure, which everybody understands needs to be done, we are in the process of trying to increase the pace; there is also the issue of just clearing t he way for entrepreneurship or, broadly, enterprise in India, and if we can do some of that, I think that could be a big win.
Many analysts say you are the leading candidate to become the governor of the Reserve Bank of India next year when Duvvuri Subbarao, the current governor, retires. What do you think about that?
Hypothetical, and basically right now the challenges inside the real economy are really the most important things to focus on. Anywhere, what you want to focus on is the here and now. And the here and now is so important for getting our growth back on track. The monetary side is important, of course - there is the inflation issue to deal with, there is the financial sector liberalization - but I think the real sector, in my mind, is the single most important thing right now. I don't think about hypotheticals.
Do you and the finance minister, Palaniappan Chidambaram, speak to each other in Tamil?
I don't think he wants to try my Tamil out. My speaking is pretty rusty. I did learn how to read and write, but I don't want to venture to speak, especially on economic matters.
I am a 10th class pass in Hindi; from 7th grade to 12th grade, I was in Delhi; before that, I was abroad. I came in not knowing a word of Hindi in 7th grade and learned Hindi and passed the exam in 10th. I think I was north of 50 percent, so I feel very proud of that accomplishment. I remember mugging up lots of long words to impress the examiner. But I want to develop to a point where I can give a working interview in Hindi. I can understand the questions perfectly but not the terminology â€" English words for fiscal deficit, which would be pretty unusual in Hindi. Hopefully, by the end of the year I will have some knowledge of that kind of stuff.
(This interview has been lightly edited and condensed.)
