Raghuram Rajan has been appointed as the next Governor of the Reserve Bank of India (RBI), replacing Duvuri Subbarao whose term ends in September 2013. Rajan faces several challenges in his new role, including improving RBI's relationship with the finance ministry, strengthening the rupee, replenishing foreign exchange reserves, keeping inflation in check, and overseeing the licensing of new banks in India during a period of economic uncertainty. As RBI Governor, Rajan will have to balance various economic goals and guide monetary policy prudently through the difficult economic conditions.

1. Investeurs Chronicle
August 2013, Volume: 77

2. Cover
Story
Raghuram Rajan has been appointed as the next Governor of the Reserve Bank of India
(RBI) as the current governor’s (Duvuri Subbarao’s) term ends on September 4, 2013.
Dr.Rajan, a former IMF economist, visiting professor to the World Bank and US Federal
Reserve Board and one of the few economists who predicted the 2008 credit crisis will head
the RBI.
Rajan — ‘Raghu’ to his many friends and colleagues — is rated as one of the most influential
economists of his generation. Rajan, 50, will be the second youngest governor
after Manmohan Singh, who took charge when he was 10 days short of his 50th birthday.
Bhopal-born Rajan has always been a high achiever: A gold medalist at both IIT Delhi and
IIM Ahmedabad, he went on to complete his PhD from the Massachusetts Institute of
Technology.
He became the Economic Counselor and Director of Research (Chief Economist) of the
International Monetary Fund in September 2003— the youngest ever to be appointed to this
post.
In 2003, he also won the first Fischer Black Prize, which is awarded to the most promising
economist under the age of 40, by the American Finance Association. He is also a Professor
of Finance at the Chicago University’s Booth School of Business.
His most widely-read book, Saving Capitalism from the Capitalist, was co-authored with
fellow Chicago GSB professor Luigi Zingales and published in 2004.
In 2005, he predicted the financial crisis of 2008-09, but was brushed aside by economists
such as former US treasury secretary and Harvard University president Lawrence Summers,
who called him a “Luddite”.
Rajan is viewed as a pragmatist on monetary policy likely to stick fairly closely to Subbarao’s
line on managing inflation. The outgoing governor fought an uphill battle against price
pressures for much of his term in an economy plagued by supply-side bottlenecks and
legislative and bureaucratic paralysis.
Raghuram Rajan-The Academician Regulator

3. Cover
Story
Despite the impressive credentials, there are several challenges he will face in trying to drive higher incomes and more stable prices for 1.2 billion Indians.
What to expect from Rajan:
The immediate priority for the new governor will be to draft the mid-quarter review of RBI’s monetary policy on September 18 - within a fortnight of taking
charge. But the long-term challenges that Rajan has to address are:
1. North Block – Mint Road relationship:
The relationship between the finance ministry and the Reserve Bank of India governor’s office has hit rock bottom. It will be a challenge for Rajan to
improve the relationship at a time when the economic scenario is deteriorating.
2. Recovery of rupee:
Perhaps the biggest challenge for the new governor will be to strengthen the rupee which has depreciated more than 12% in the current financial year,
and the drivers of the weakness are not entirely in control of Indian policy makers.
3. Recouping FX reserves:
The foreign exchange reserves is at a three- year low and could cover imports for about six and half months, lower than what is seen as providing stability
to the currency. Replenishing the forex kitty will be a key task.
4. Keeping inflation under check:
After fighting price rises for close to three years, outgoing governor D.Subbarao finally brought WPI inflation below 5 per cent – seen as the tolerance
threshold of the central bank, though consumer price inflation is still high.
5. Reversal of liquidity tightening measures:
If Subbarao decides to continue with the liquidity tightening measures till September 4, or perhaps introduces new measures, then Rajan has to face the
challenge of withdrawing those measures. That's because the timing of such a step will be critical for exchange rate stability.
6. New bank licenses:
Rajan takes charge at a time when the banking regulator is in the process of giving fresh licenses for banks after more than a decade and for the first time
decided to allow industrial houses. Rajan faces the challenge of selecting the ‘fit and proper’ candidates from the 26-odd applicants.
As the next governor of the Reserve Bank of India (RBI), Raghuram Rajan, will be stepping in the new role during tough economic conditions. Economic growth
has decelerated sharply, the government deficit is about ten per cent of GDP, inflation has remained elevated at close to double-digits for over three years, and the
current account deficit has widened sharply to unsustainable levels.
As if this weren't enough, the country is also gearing up for two bouts of elections within the next nine months. Fiscal prudence could well be a casualty, further
burdening the RBI and endangering the macroeconomic situation.
There is a tricky balancing act that he will have to pull off.

4. Silver is often sought as a more affordable store of value than gold at times of wider market insecurity. Both the metals are also traditionally sought as hedges against inflation
and currency debasement at times of loose central bank monetary policy. However, Silver continues to lack its own drivers at the moment and is therefore taking its cues from
the gold market. This means that the white metal would also come under pressure as gold sentiment sours further. Given silver's tendency to overshoot gold moves, the
downside risks are greater in the short term.
Silver prices for this year have been slashed as the metal is expected to be dragged lower on gold's coattails as the U.S. Federal Reserve prepares to scale back its stimulus
program. This year, silver is expected to average $24 an ounce and $25 an ounce in 2014. The Metal prices would get further affected due to turmoil in emerging markets and the
prospects of lower growth in China.
Further ahead, though, silver's price outlook looks brighter. Though silver is perhaps best known as an investment tool, it is not without other sources of demand. Unlike gold,
silver is used widely in industry, and demand for the metal in electronics and solar panels, for instance, tends improve as economic growth picks up. The 'normalization' of the
global economy and the return to healthy growth rates should increase the role of fundamentals in the silver market: robust industrial demand would offer more stability to
silver prices on a yearly average basis.
Stats
Outlook-Silver
Gloss
Dirigisme
It is an economic system where the state
exerts a strong directive influence over
investment. It designates a capitalist
economy with a strong directive, as opposed
to a merely regulatory, role for the state. A
related concept is that of state capitalism.

5. Emerging Country- Venezuela
Venezuela officially called the Bolivarian Republic of Venezuela is a country on the northern coast of South
America bounded on the north by the Caribbean Sea and the Atlantic Ocean, on the east by Guyana, on the south by
Brazil, and on the west by Colombia.
Venezuela has a mixed economy dominated by the petroleum sector. Venezuela is the world´s tenth biggest exporter
and the thirteenth largest producer of oil. Venezuela remains highly dependent on oil revenues, which account for
roughly 95% of export earnings, about 45% of federal budget revenues, and around 12% of GDP. Other major exports
are bauxite and aluminum, steel, petrochemicals, and agricultural produce. Venezuela’s principal trading partners are
the United States, Colombia, Brazil and Mexico. Major import commodities in Venezuela are machinery and
equipment, construction materials and other raw materials, to support its domestic industries and increase exports.
Venezuela’s economy grew by 5.6 per cent in 2012, but is forecast to grow by only 0.1 per cent in 2013. High inflation,
falling public expenditure due to volatile oil prices, a weak investment outlook and deteriorating infrastructure are
contributing factors to this slowdown.
Economic growth slowed sharply to 0.7 percent during the first quarter of this year, from 5.9 percent in the same
period in 2012. GDP per capita rose from $4,132 in 1999, to an estimated $11,131 in 2012, according to the
International Monetary Fund (IMF). Economic growth in the first quarter mostly reflects depressed domestic
demand, which grew only 1.8% over the same quarter last year. Exports fell 7.5% while imports virtually halted to a
1.1% increase. Inflation hit a record monthly high of 6.1 percent in May, bringing the annualized rate to 35.2 percent.
Foreign direct investment in Venezuela fell 15% in 2012; Venezuela received USD 3.21 billion versus 3.77 billion a
year earlier.
India and Venezuela have been maintaining cordial relations. India’s export to Venezuela is around US$300 million.
The main items of India’s exports are pharmaceuticals, chemicals, Calcined Petroleum Coke (CPC), textiles and
engineering products such as scooters, equipment and machinery. The Indian Pharma industry has already made a
mark and some reputed companies are operating there. Venezuela’s total export to India is US$ 14105 million. The
main items of India’s imports from Venezuela are crude oil, iron pellets and electrical cables.
Vital Economic Statistics of Venezuela
Economy
Particulars Details
GDP (nominal) $345.651 billion(2013
estimates)
GDP growth rate 0.70% (2013
estimates)
Currency Bolivar Fuerte (VEB)
Credit Rating B (S&P)
B+ (Fitch)
B2 ( Moody’s)
Fiscal Deficit 10.20% of GDP (2012)
Current account
Deficit
6.189 % (2012)

6. In FocusForex
Economic New Companies Bill- Kudos to the lawmakers
The Rajya Sabha on 8th August 2013 passed the Companies Bill, which seeks to
improve transparency and accountability in the companies. The new Companies Bill,
which replaces the decades-old Companies Act of 1956, requires President Pranab
Mukherjee's assent to become law of the land. The Lok Sabha had passed the Bill in
December last year.
The five radical shifts in the new Bill: Corporate governance, corporate social
responsibility (CSR), accounting provisions, relationship of the directors and the
auditors with the company, and finally, the merger and amalgamation provisions
have improved transparency and broad-based accountability while protecting the
minority interests in a company.
On a macro basis, the new Company law is slimmer with about 470-odd sections. But
the subordinated legislation – Rules – will be the real test on whether the new
corporate framework is heralding a shift from control to self-regulation or not. Nearly
75 per cent of the provisions in the new law are to be administered through the
Rules. This is a clear pointer that Parliament and Indian law makers will have very
little to do regarding Company law per se in the coming years with most changes
possible through the executive.
Another interesting facet is that the new law has defined “fraud” and extensively
dealt with it. The earlier Companies Act did not define “fraud” or corporate
misconduct. With increase in corporate frauds in the country, this may be the right
approach.
All in all, the Companies Law Bill passed by Parliament last week is a major attempt
to streamline the functioning of companies. The new law is being enacted at a time
India is in dire need of investments, both foreign and domestic, to sustain the
economic growth rate, which alone can make a dent on poverty.However great the
Companies Bill, 2013, may be, its success will depend on how well it is implemented.
Often, it is not realised that the law is as good as the rules and regulations framed
under it.
Sensex Nifty
19,182
.26
18,598
.18
5685.
40
5507.
85
Gold (10 gm) Silver (1 Kg)
27865
30492
41780
50496
Crude Oil ($/barrel) Dollar/INR
108.70
110.40
60.82
61.82
Data from 5th August 2013 to 16th
August 2013

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