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People shop for clothes last month inside a shopping mall in Mumbai. Raghuram Rajan, the former IMF chief economist who will be named as senior economic adviser to Prime Minister Manmohan Singh, has argued in recent speeches and articles that corruption, inefficiency and populism in politics are damaging India’s economic prospects. (DANISH SIDDIQUI/REUTERS)
People shop for clothes last month inside a shopping mall in Mumbai. Raghuram Rajan, the former IMF chief economist who will be named as senior economic adviser to Prime Minister Manmohan Singh, has argued in recent speeches and articles that corruption, inefficiency and populism in politics are damaging India’s economic prospects. (DANISH SIDDIQUI/REUTERS)

India picks former IMF economist as top adviser Add to ...

Raghuram Rajan, the former chief economist of the International Monetary Fund and an outspoken critic of Indian corruption and bureaucracy, will be named as senior economic adviser to Manmohan Singh, Indian prime minister.

The appointment of Mr. Rajan will increase the momentum for economic reforms and is the latest sign that the Singh government wants to respond to a chorus of complaints from foreign and domestic investors. People with knowledge of the decision said it would be announced soon.

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Only last week, Mr. Singh made Palaniappan Chidambaram his new finance minister. Mr. Chidambaram, who has held the finance portfolio twice before, wasted little time in stamping his mark on policy, pledging in a statement on Monday to clarify tax laws and remove obstacles to investment in order to promote growth.

Mr. Rajan, finance professor at the University of Chicago Booth School of Business, has argued in recent speeches and articles that corruption, inefficiency and populism in politics are damaging India’s economic prospects.

“Even as the world becomes more competitive, India’s star has dimmed in the last few months, as our governance is besmirched by corruption scandals and our macroeconomic health has deteriorated,” he said in a speech earlier this year at the Indian School of Business in Hyderabad.

“Our politicians seem unable to come together to vote for growth-enabling reforms, even while they are willing to join hands in every populist vote … The government does too much of what it should not do, [and] too little of what it should do, even while being capricious and unaware of its limitations.”

Investors have been cheered by the fact that both Mr. Chidambaram and Mr. Rajan have questioned the merits of retroactive Indian tax legislation, which has burdened Vodafone, the UK mobile telephone group, with an unexpected capital gains tax bill of more than $2-billion from an acquisition it made in India five years ago.

Mr. Rajan, however, has also criticised the country’s business leaders. He wrote in a recent opinion column that politicians, industrialists and bureaucrats had taken advantage of the lack of transparency in land ownership and zoning to misappropriate land and other assets.

This damaging “Resource Raj” had prompted a popular backlash and a series of investigations and arrests, but had also produced the unfortunate side-effect of blocking even bona fide industrial, mining and infrastructure projects.

With economic growth slowing in the midst of disappointingly light monsoon rains, Mr. Rajan will have to advise Mr. Singh on how to promote investment without reigniting corruption.

Economists at investment banks have cut their forecasts for growth in the fiscal year to March 2013 to around 5.5 per cent, compared with the central bank’s current estimate of 6.5 per cent and its earlier prediction of 7.3 per cent.

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