What Raghuram Rajan, the new governor of RBI, needs to do

The new governor of RBI, who rose to fame when he predicted the US crisis, has a lot of work to do in cleaning up the economic mess in India.  Here is a list of things that Raghuram Rajan must do now to restore stability in the Indian economy

Raghuram Rajan, the new governor of Reserve Bank of India (RBI), faces challenges of enormous proportions. The RBI has been criticised like never before. Many experts believe that the Central Bank is primarily responsible for the ongoing economic woes in India. It all started with the overzealous approach of the previous governor, D Subbarao, to control inflation. Thirteen consecutive repo rate hikes killed the ability of economy to grow, while it failed to control inflation as well. The fascination of controlling wholesale price index (WPI) has not worked at all, as the entire country continues to reel under the negative impact of inflation. As if all this was not enough, the recent crisis of the depreciating rupee has exposed the hollowness of RBI measures. The new governor brings lots of hope and expectation. Here are some of the key challenges that the new governor needs to manage:

Trilemma of managing growth, inflation and currency: India's economy is at the crossroads-growth is slowing down, fear of double-digit inflation looms large with crude prices going up. The worst part is that the rupee is on a free fall. There are very few RBI governors in the past, which have faced this unique scenario called as trilemma, in which inflation along with currency needs management of enormous proportion without throttling down growth further. It is an open secret that the Indian economy can ill-afford to have 4.4% GDP growth (the last quarter GDP growth) on a long-term basis. This is far from the projected growth of 8%-9% visualized in 12th plan document.

So what is the solution?

The solution lies in propelling economic growth by attracting foreign investment and also ensuring that domestic growth picks up. In order to ensure that growth picks up, one key trigger is the cost of capital, which impacts investment environment.

Should RBI go ahead and cut the rate of interest by lowering the repo rate? This is the biggest dilemma. While RBI has recently taken measures to suck liquidity out of the economy to protect the fall in the rupee, any reversal of this can adversely impact the currency which is struggling to stay below Rs70 per dollar levels. But the growth cannot be achieved unless the liquidity is eased. In addition, inflation may go up further, if the interest rate is brought down. It has been seen in the past that monetary policy measures do not work in controlling inflation, as there are several supply side constraints.

In order to overcome this challenge on an immediate basis, there is very little that RBI can do alone. It needs to work in tandem with the government to ensure that measures are taken to attract foreign investment. This will be the first step in stabilising the currency. This is easier said than done. However, measures to attract foreign investment can be achieved by easing foreign direct investment norms. While this may take time, issuing sovereign bonds would help. As India needs dollars to flow into the economy to stabilise the rupee.

Customer focus of RBI: RBI as a Central Bank is not very customer friendly. Customers of banking services in India have to very often resort to legal measures to get justice. There are frequent cases of banks cheating investors and mis-selling products to the customers. The banking ombudsman, who was supposed to be the protector of customer's interest, works on dotted lines. Mangelal Sharma's case taken up by Moneylife is a case to justify the dotted line-approach of the banking ombudsman. There is a sense of helplessness amongst customers when they face any banking issue. Moneylife has taken up many issues on behalf of banking customers, which should have been ideally tackled by the regulator. The RBI looks completely understaffed to take care of customer's interest. The new governor needs to have a look at this.

Stringent mechanism to handle money-laundering cases: The Indian banking system is ill equipped to handle cases of money laundering. The regulator has been in 'denial mode' when it comes to widespread money laundering in the Indian banking system. Thanks to Cobrapost, the cases of money laundering were identified in many banks and RBI penalized 22 banks. But that was just the tip of the iceberg. The Indian banking system lacks adequate controls to check money laundered by politically exposed persons, through correspondent banking system and transfer of funds to tax havens. The know your customer (KYC) mechanism is based on the 'tick box' approach and lacks comprehensiveness to identify cases of money laundering. This is a serious issue, which deserves the attention of the regulator.

The new governor needs to have 'out of the box' thinking to manage macro economic variables at least till the time elections are held. It is very unlikely that the government will initiate changes that can turn the tide. However, the new governor needs to initiate measures to bring back Indian economy on track. It looks very difficult, but that is where the abilities of a suave, unflappable University of Chicago economist, Raghuram Rajan, will be tested.



nagesh kini

3 years ago

In times of utter multiple crisis situation, in Raghuram Rajan India expects RBI to put on a much better out of the box act by adopt more aam janaata friendly proactive actions away from babudom.

Vinay Isloorkar

3 years ago


I am reminded of a ribald joke which runs something like this: What did the gonads say to the Phallus ? For your crimes we hang !

Making Subba. Rao the fall guy for the profligacy and irresponsible and cheap populism of the government has to be rubbished. The Current Account Deficit is a child fathered by the Finance Minister, roughly CFO of the country.

Forget welcoming FDI. We must seriously consider if FDI has become a monster that contributes to volatility far beyond its perceived benefits.

Globalisation has turned out to be a sellout for the country. Let us snub FDI for a change. The blokes will stand in queue to tap this rich market. We need to delink from the outside world and go into our coccoon for sometime.

Dayananda Kamath k

3 years ago

it is rbi as well as govt which have destroyed the economy based on borrowed fund forex reserve maintained by india. i suggest the governor to go through various correspondance i have made with governor of reserve bank of india since 2003. it clearly shows how rbi has abdicated its responsiblity as a regulator.'is rbi the sponsoror of all financial scams in india' in captioned letter i have menetioned how rbi is responible for the scams.

MG Warrier

3 years ago

Copied below is an excerpt from my article on new RBI Governor published in Global ANALYST(September, 2013):
"Dr Rajan, as is evident from his academic and professional record, is a fast learner and capable of finding solutions to the toughest of economic and monetary problems. His challenges lie in (a) how fast he will be able to ‘unlearn’ the IMF lessons which were modeled with prosperity of the developed world in view and (b) how quickly he will get convinced about the historic dual responsibility of RBI to ensure distributive justice while supporting economic growth and reframe his arguments to convince North Block that after all RBI has been on the right path and what the central bank lacked was the support from GOI."


3 years ago

The new incumbent needs to take decisions. The environment where he predicted the crisis was completely different.Also past performance is just an indicator.His abiity to influence the government is key. We must keep our fingers crossed & not speculate !!


3 years ago

I doubt if we are being too optimistic. To me it is more about setting up a FM friendly governor.

We have been bitten once by casting many hopes on recently elected young CM. There was a lot of buzz about his age, upbringing etc etc, but eventually he turned out to be of the same kind. Like father like son.

More the hype, more we are disappointed. Take the case of US President itself for example.

NSE wants brokers to collect upfront margins to shift the blame for flash crash last year

While NSE want brokers to collect upfront margins from investors to avoid a flash crash like 5th October 2012, why is Sebi going soft on NSE for a obvious systemic failure on that day?

On 5th October 2012, the Nifty crashed by over 900 points when a dealer for stockbroker Emkay Global punched a wrong order. While National Stock Exchange (NSE) quickly blamed Emkay for the crash, but has not bothered to explain why its market-wide circuit filters failed to work. And now, NSE is seeking approval from the market regulator for its proposal under which brokers will have to collect margin money upfront from investors for trading in shares or the cash segment, similar to futures and options (F&O) trading.


At present, Exchanges collects upfront margins from brokers, but brokers do not ask clients for money in advance in the cash segment. In short, brokers are funding the clients, who settle the trades on next day using the ‘T+1’ settlement. The NSE move follows a show cause notice issued by Securities and Exchange Board of India (SEBI), after the 5 October 2012 flash crash.


NSE blamed 'abnormal' orders, worth $126 million, placed by the stockbroker in multiple trades of various stocks at low prices, for the crash. NSE claimed there were no technical glitches in its system and the crash was due to 'erroneous' trade orders worth over Rs650 crore by Emkay, which was disabled by the bourse for trading.


According to a report from Business Standard, in the notice (to SEBI), NSE had said mandating upfront margins even in the cash segment would have prevented the flash crash in October 2012. This is incorrect and an attempt to shift the blame.


Even if Emkay Global had collected 150% margin and then punched a wrong order, would the results be any different? NSE has continued to blame Emkay for the crash, but has still not bothered to explain why its market-wide circuit filters failed to work. Brokers are increasingly getting angrier at being held responsible for all technology problems and want a fair and open investigation.


In fact, when NSE index showed a sudden fall of nearly 900 points or over 15% within seconds, triggering the circuit filter (maximum permissible limit of movement in the index) at 0950 hours on 5 October 2012, the Exchange was supposed to halt trading for an hour. This is as mandated by SEBI circular on circuit filters. However, without the halt, NSE resumed trading at 1005 hours. This by not following SEBI circular, NSE has violated the norms on circuit filters.


NSE informed SEBI that the decision to reopen the cash market after a halt of 10 minutes was taken by the Exchange as F&O markets and other markets were functioning normally and the fall was apparently on account of freak orders from a particular member.


Last year, in August, the chief technology officer of the NSE preposterously told Business Standard that the Exchange had ‘attained nirvana’ in technology by being able to put through transactions at the speed of light. This when the Exchange had already had serious issues in three consecutive months—March (ONGC), April (Nifty futures algorithmic trading) and May (derivatives snag) and a fourth bigger one was about to happen in October.


As Moneylife has already said, the NSE as well as the Bombay Stock Exchange (BSE) seem to have ignored every check prescribed by SEBI. Trading was not halted in both bourses and across market segments; but the regulator’s only reaction is to launch an investigation.


The NSE has always successfully evaded a close scrutiny of all technology issues for over a decade. In its initial years, especially under the leadership of the late Dr RH Patil, the NSE was seen as an extension of the regulator and the government system. Not any more. Today, the NSE is driven by profits, pay and perquisites of senior executives, which are tied to a desperate need to maintain market share.




3 years ago

sathya cumaran
operational head india
singapore media and channel group

this margin concept of stock broker is cheating even when the client opt out of this margin funding the broker desist from this concept and they lure the investors and cheat them and as such margin trading should be strictly controlled for which sebi nse bse never have intention to control infact they have formed an cartel and innocent investors is left in throught as such in india we donot have any protection for indian investors and it lies with the unscrupulous broking community and this is the ptiable status for this instead of spendig govt exchequer by establishing sebi nse bse these institution could be wounded and leave the market to broker even now the same status instead govt expenditure could be curtailed and this amount could be used for some welfare scheme instead paying hefty salary to staff of these unscrupulous govt servant is our surmise


3 years ago


noramlly the stock brokers cheat their customer with existing position of stocks they have they lure the investor by margin funding for which they cahrge upto 21% of interest and apart from this even if the client had not opted for this margin funding the brokers never divulge whether they have been removed from margin funding is not disclosed and as such there is again shady transaction going on but the sebi and nse bse are well aware of this fraud but they party to it but they say investor protection which is not so they proctector for fraudlent stock broker and as such investing and trading in stock market that to country like india where corruption in all walks of life even the govt organisations like sebi nse bse where there is lacking honesty integrity and dependability which our sole concern but with the present UPA II govt everything is lost is the pitable case and even justice is denied and officials of sebi and nse bse are highly corrupt is surmise we can say not single officer above corruption only GOD has to Punish and restore justice even if we take the case to supreme court the supreme court judges are threatened by these unscrupulous brokers and even the officials of sebi and nse bse inorder to save their skin they put the blame on others and as such there is totally collapse of justice and morale everythig is lost


Vaibhav Dhoka

In Reply to sathyacumaran 3 years ago

SEBI,NSE,BSE has formed cartel to dupe investors and help Brokers.And you have correctly mentioned Justice system is near collapsed.

AEGON Religare conveniently misinterprets surrender clause for Invest Maximiser plan

AEGON Religare is misinterpreting surrender clause to force four premium payments and also not giving satisfactory answer to policyholders on surrender while enticing new product sale without any surrender charge for old policy. Will the IRDA wake up?

AEGON Religare Life Insurance (ARLI) has given Dinesh Mehta (name changed) evasive answers on policy surrender charges for over six months even though he has been repeatedly asking for an answer to a simple query. The customer care personnel has been blindly sending him cut-paste replies from the surrender clause in product brochure without even looking at Mr Mehta’s case. When Mr Mehta persisted to get an answer, the customer care got email replies from the product team of “Invest Maximiser Plan ULIP” to give clarifications. Mr Mehta was able to get inter-department emails. It shows customer care’s lack of knowledge. Moreover, they resorted to the cut-paste job even after getting clarification from the product team.

After Moneylife Foundation Insurance Helpline intervention, Mr Mehta was able to get a one-line specific answer to his question on what would be the surrender charges if he were to surrender the policy after 48 months of policy term and payment of three premiums. The reply was – “We would like to inform you that there will be surrender charges applicable of 15% of regular premium fund value.”

While Moneylife Foundation was able to force ARLI to give specific reply after taking the issue to highest level, the problem is that ARLI has clearly misinterpreted the surrender clause of its product to its own benefit. Here is the wordings from Invest Maximiser Plan ULIP product brochure which the customer care personnel were doing the cut-paste job:

Surrender - You can surrender the policy any time after the first 3 policy years. There is no surrender charge after 4 policy years. Surrender value is fund value minus the surrender charges. If you surrender the policy before 4 years, charges will depend upon the period for which you have paid your premiums, as given below:


Regular premium paid period (months)

Less than 12

12 to 23

24 to 35

36 to 47

48 onwards

Surrender charges as a % of fund value of regular premium







If Mr Mehta paid three premiums and was willing to wait for 48 months from policy inception, there should be no surrender charges as per plain reading of the surrender clause. But, ARLI has created its own interpretation and insists on payment of fourth premium or else there will be 15% surrender charges.

In fact, ARLI is lax about the surrender clause if the policyholder pays four premiums and surrenders the policy even before 48th month. In this case, ARLI does not levy charges even though it should, as per surrender clause. Here is the reason for it. According to Mr Mehta, “In Ahmedabad the Renewal Manager is approaching every one to pay 4th premium and withdraw immediately and invest in a new plan. There is no rationality of 48 months surrender charges.” He has given an example of his friend’s policy for which no surrender charges were levied even though it was surrendered in 37th months. The key here is that 4th premium was paid.


It is not the first time ARLI has been vague about is its terms in the product brochure. Last year, Aegon Religare launched Educare, a traditional child plan. The product brochure does not mention about who pays the future premium in case of death of the policyholder. While the insurer intends to offer waiver of premium (WoP), why does the brochure omit such an important line? Is such vagueness strategically inserted?


Read: Aegon Religare Educare—Does it really offer waiver of premium?



Rahul Mukherjee

10 months ago

Aegon Religare Insurance Company is a fraud insurance company. They sell their product with fake commitment. And Customer Care is too dull to respond properly. I lost around Rs. 55000 in investing in Aegon Religare, and decided not to pay a single premium to them.I suggest all peoples not to Purchase any Policy of Aegon Life Insurance (Previously Aegon Religare). They are just fake. Our Money is invaluable to them.

Raman Jain

2 years ago

The interpretation taken by Aegon is appropriate. If you read carefully and without blinkers you will be able to make sense of what is written.

Please do not defame companies for your own profit.


Debashis Basu

In Reply to Raman Jain 2 years ago

"Own Profit"?
Can you please elaborate. Or is it designed to defame us?

raj pradhan

In Reply to Raman Jain 2 years ago

It may be your interpretation about the article. No problem with it.

We can also interpret that you can be insurer man writing under personal name.

If the insurer has an issue, they can write to us. They have not done it since last 10 months of the article.


3 years ago


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