GO
Loading...

Former RBI governor: I would give Rajan A+ rating

India's central bank chief Raghuram Rajan deserves an "A+" grade for his performance over the past 10 months, says predecessor Duvvuri Subbarao.

"If there is anything beyond [A+], I would give it to him. He's been able to [apply] his scholarship of finance to practical situations. He's doing very well," Subbarao - who was at the helm of the Reserve Bank of India from September 2008 to September 2013 - told CNBC on Friday.

"There's no doubt from his decisions and actions over the last 10 months he is doing what is right," he said.

Banker showdown:Bernanke tells off India's Rajan

Rajan took the reins from Subbarao amid a challenging environment of sluggish growth, stubbornly high inflation and a currency at its weakest level in history.



Reserve Bank of India (RBI) Governor Raghuram Rajan
Kunal Patil | Hindustan Times | Getty Images
Reserve Bank of India (RBI) Governor Raghuram Rajan

Asia's third largest economy expanded 4.7 percent in the fiscal year that ended March 31, with growth stuck below 5 percent for a second consecutive year. Meanwhile, retail inflation has averaged around 10 percent for the past two years, according to Reuters.

His success in restoring financial stability and regaining investor confidence within weeks of being on the job has earned him the nickname India's "rock star" central banker.

The rupee, for example, has appreciated over 9 percent since September, helped by measures the governor took to reverse capital outflows and liberalize the banking system.

The rupee is killing it; here's why it will last

Addressing concerns around central bank autonomy under the new government, Subbarao said he believes Rajan will be able to maintain the independence required for effective policymaking.

A message for Modi

With high expectations for the new Bharatiya Janata Party (BJP)-led government, Subbarao said it's important that Prime Minister Narendra Modi doesn't fall into the trap of avoiding politically tough decisions to maintain his popularity.

The government's upcoming budget on July 10 will be a test of its commitment to implementing difficult reforms needed to improve the economy's long-term outlook in areas such as subsidies and tax.

The 'sexy' central banker who's causing a stir

"What needs to be done is quite clear – you've got to accelerate growth, bring inflation down and see that the benefits of growth are widely shared. The economic reforms need to achieve those objectives is quite clear – what is difficult is the government needs to take some very difficult political decision," he said.

"It might cost them in the short term politically but you must remember economic virtue is eventually political virtue – if he perseveres with good governance, strong leadership and necessary economic reforms, he will find that will yield him rich political dividends five years down the line," he added.

Featured

Contact Asia Economy

  • CNBC NEWSLETTERS

    Get the best of CNBC in your inbox

    › Learn More