Gita Gopinath has a solution to India’s rupee woes
Gita Gopinath, argued that outside US, most countries are far more exposed to inflation driven by exchange rate depreciation and, hence, needed to hike policy rates to guard against higher inflation
In 2015, Harvard University professor Gita Gopinath had presented a paper at the US Fed’s Jackson Hole economic symposium—the mecca for monetary economists—on how exchange rate fluctuations have varied impact on inflation across countries. This could prove to be a guiding light for the Reserve Bank of India (RBI) as it faces the dilemma over whether to increase or not to increase policy rates on Friday, given the sharp depreciation of the rupee.
Gopinath, who was appointed as the first woman chief economist of the International Monetary Fund (IMF) on Monday, argued that outside US, most countries are far more exposed to inflation driven by exchange rate depreciation and, hence, needed to hike policy rates to guard against higher inflation.
“The depreciation (appreciation) of a country’s exchange rate from external shocks is not an inflationary (deflationary) concern for all countries. For the US, with 93% of its imports invoiced in dollars, the consequences are far more muted than for a country like India that has 97% of its imports invoiced in foreign currency (mainly dollars). Conversely, monetary policy is less effective in lowering (raising) inflation via a stronger (weaker) currency in the US as compared to India,” she said in her speech.
With Gopinath’s appointment, now women are the top economic advisers at IMF, World Bank and Organization for Economic Co-operation and Development (OECD). While Greece-born Pinelopi Koujianou Goldberg is currently the chief economist at World Bank, French economist Laurence Boone is the chief economist at OECD.
IMF managing director Christine Lagarde, who has often advocated greater participation of women in economic decision making, said in an interview on Tuesday that Gopinath passed all the tests of her credentials with flying colours. “She is a class act. She happens to be a woman. We are delighted that she is joining IMF. She will steal the show from me. That’s good. She will come and rescue me.”
Gopinath, 46, will be the second Indian after Raghuram Rajan to hold the post though she has differed from Rajan’s views on many occasions. For example, in a 2016 interview, soon after Rajan left his top job at RBI, Gopinath said she did not agree with his view that monetary policy in advanced economies is too loose.
Never to mince her words about applause or criticism, Gopinath was all-praise for the Narendra Modi government when it came to power in 2014. “One thing that has happened is that the buzz has gone up for sure in a positive sense. Business confidence,consumer confidence and confidence of rating agencies on the Indian economy, everything is up,” she had told NDTV on the sidelines of World Economic Forum in November 2014.
However, Gopinath was critical of the government three years later when it announced demonetization of high value currencies. In an interview with Mint in December 2017, Gopinath said the expectation that a significant chunk of the demonetized currency will not come back was misplaced. “The idea that RBI will be able to make a big transfer to the government was misplaced. It was a very good signalling device that the government was very serious about cracking down on corruption and black money. But I do not think it was very effective in curbing it.” Gopinath has since been proved correct.
Gopinath was born in Kolkata, but did her schooling in Mysore where her family is settled. “She attended a very ordinary school, Nirmala Convent, in Mysuru. She has come a long, long way...she is 46 now,” says her proud father T.V. Gopinath.
The father is a key figure in reforming Karnataka’s farm sector. The company, Raitha Mitra (farmer’s friend in Kannada) Farmers Producers Co. Ltd, co-founded with farm leader Kurubur Shanthakumar in 2015, delivers most of the fresh vegetables to Kerala. It has significantly changed the lives of farmers in Karnataka by providing them with direct market linkages and eliminating middlemen.
After schooling, T.V. Gopinath wanted his daughter to crack civil service and sent her to study economics at Lady Shri Ram College in Delhi, where she won the President’s Gold Medal. “It was my decision to send her to Delhi because I wanted her to become an IAS officer. Only for that reason I said, do not study engineering, you study economics and be an IAS officer.” But the daughter had other plans.
After completing her masters from the Delhi School of Economics, she went to the US for her PhD from Princeton University in 2001, under the guidance of economists such as Kenneth Rogoff and Ben Bernanke, former chair of the US Federal Reserve. She joined as an assistant professor at University of Chicago before moving to Harvard University in 2005.
Praveen Chakravarty, political economist and current chairperson of the data analytics department of the Congress party, who has been an extremely close family friend of Gopinath for 20 years, says she is also a great fan of Bollywood movies and a foodie. “I have never seen a more sincere, hardworking, meticulous, dedicated person than her and with such exacting standards. More importantly, she is a very warm and friendly human being.”
On 12 September, Gopinath came to India to make a presentation to the RBI and then travelled to Kerala and finally reached Bengaluru on 14 September along with her family. It was then that IMF’s managing director Lagarde called her up and told her that she had been selected for the top economic officer’s post in the organization and the announcement will be made soon.
After the call, her father recalls she turning to him and saying, “Acha (father), don’t tell a single soul.”
This close-guardedness has been a trademark of her personal life in India, especially on her last appointment back home, as an honorary economic advisor for Kerala’s communist chief minister Pinarayi Vijayan in 2016, despite the position having all the sparks ready to create a spectacle firework.
Gopinath stands for almost everything that Indian communists love to oppose. However, Vijayan, in his efforts to usher in a breakaway legacy for himself and the party, wanted her as an adviser to send a signal to the local and global business community looking to invest in Kerala. Both her parents, including mother Vijayalakshmi, hails from Kannur, a left bastion in Kerala.
But can Gopinath follow in the footsteps of Rajan to the top job at Mint Street? Her US citizenship obviously rules out that possibility for now. “But you never know. If any government wants her, they can change the rules. She will be a fantastic candidate for the post,” a senior Delhi-based economist said, requesting anonymity.
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