5 ideas
Rajan took office in September 2013, when the rupee was in free fall after the US Federal Reserve signalled it would taper bond purchases. Paired with a credible announcement of reforms, this stabilised the currency and rebuilt reserves. It is a concrete case of an emerging market regaining confidence through a targeted, time-limited balance-sheet move plus signalling rather than capital controls.
Indian banks, especially state-owned ones, had been 'evergreening' bad loans by restructuring or lending more to stressed borrowers, which hid non-performing assets and choked new credit. The RBI's 2015 Asset Quality Review made banks recognise and provision for these loans on a deadline. The mechanism: the cleanup has to start with recognition, because banks won't stop lending to zombie borrowers or raise capital while losses stay officially invisible, even though disclosure causes short-term pain.
Rajan argues that persistent high inflation is a hidden tax that falls hardest on poor households and savers, whose deposits earn negative real returns. On this view, low and stable inflation is a precondition for sustainable growth, not an obstacle to it.
Rajan contends that prolonged quantitative easing in advanced economies drives surges of capital into emerging markets and then abrupt reversals, so it works partly as competitive devaluation. Each central bank's mandate is purely domestic, so nobody is accountable for these spillovers. He proposes international 'rules of the game' that would rate policies by their net cross-border effects.
Because markets and politicians parse a governor's remarks as policy signals or political positions, even offhand phrases carry large, unintended costs. Rajan's 'one-eyed king in the land of the blind' description of India's growth, and his IIT Delhi speech on tolerance and debate, were read as political attacks.