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Rajan had only just begun to overhaul India's financial sector

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Reserve Bank of India Gov. Raghuram Rajan and India's Finance Minister Arun Jaitley attend a convocation ceremony for university students in Mumbai in January 2015.   © Reuters

Raghuram Rajan has turned in his badge as governor of the Reserve Bank of India, effective from the end of his first term in September. For many observers of the checkered history of the global financial sector during the past decade, Rajan is a maverick hero. He was a professor at the free market-obsessed University of Chicago, yet he saw the fundamental weaknesses of globalized financial markets and spoke out boldly. At the central bankers' annual get-together at Jackson Hole in 2005, his predictions that global financial markets were headed for a fall provoked a vitriolic response from former U.S. Treasury Secretary Larry Summers, who accused him of being a "Luddite." Poignantly, this meeting was principally a retirement party for Alan Greenspan, the financial market's greatest (and most blinkered) advocate. Rajan was widely condemned as a party-pooper in 2005. Within three years, his views had turned out to be prophetic.

Now, Summers acknowledges that Rajan was one of the few central bank governors to make a difference. When Rajan arrived at the Reserve Bank of India three years ago, it was still stuck in a dirigiste mindset where the job of monetary policy was to fine-tune all aspects of the economy, weighing up the various pressures being brought to bear on it, lowering interest rates when the economy slowed and steering credit to favored areas (and favored borrowers).

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