Dr Raghuram G Rajan’s list of accomplishment runs long. He was one of the few economists in the world who forewarned of the global financial crisis of 2008. Now, as the world struggles to recover, it's tempting to blame what happened on just a few greedy bankers who took irrational risks and left the rest of us to foot the bill. But, according to Dr Rajan, the worst is far from over. In his recent book Fault Lines, Dr Rajan argues that serious flaws in the economy are also to blame, and warns that a potentially more devastating crisis awaits us if they aren't fixed.

Dr Rajan, currently a faculty at University of Chicago Booth School of Business, is in capital this week and he spoke to MBAUniverse.com on the sidelines of Chicago Booth’s Global Leadership Series lecture in New Delhi on July 30. He talked about the state of global economy, India’s vibrant economy and also about his new Dean Dr Sunil Kumar, whom he selected to lead the institute in these turbulent times.

But first about the book FAULT LINES: HOW HIDDEN FRACTURES STILL THREATEN THE WORLD ECONOMY. In the book, Dr Rajan shows how the individual choices that collectively brought about the economic meltdown--made by bankers, government officials, and ordinary homeowners--were rational responses to a flawed global financial order in which the incentives to take on risk are incredibly out of step with the dangers those risks pose. He traces the deepening fault lines in a world overly dependent on the indebted American consumer to power global economic growth and stave off global downturns. He exposes a system where America's growing inequality and thin social safety net create tremendous political pressure to encourage easy credit and keep job creation robust, no matter what the consequences to the economy's long-term health; and where the U.S. financial sector, with its skewed incentives, is the critical but unstable link between an over stimulated America and an under consuming world.

In Fault Lines, Dr Rajan demonstrates how unequal access to education and health care in the United States puts us all in deeper financial peril, even as the economic choices of countries like Germany, Japan, and China place an undue burden on America to get its policies right. He outlines the hard choices we need to make to ensure a more stable world economy and restore lasting prosperity.

Talking about the India economy, Dr Rajan said, “India has missed the opportunity in the 60s and 70s to be an export lead economy like Japan and later ASEAN countries. But in a way it has proved to be a blessing in disguise. We aren’t overly dependent on US or EU, but have a strong stable home economy. In the way things are, we can continue to grow at 8-8.5%. For growing at 10% needs much better infrastructure.” He added that India’s biggest asset was its ‘demographic dividend', but enough jobs have to be created soon. “Our young population is India’s biggest asset. But it could turn out to be India’s biggest liability unless we make the opportunities to utilise this human capital which means much better education and more jobs.”

Raghuram Rajan is the Eric J. Gleacher Distinguished Service Professor of Finance at the University of Chicago’s Booth School of Business. Dr. Rajan is also currently an economic advisor to the Prime Minister of India. Prior to resuming teaching in 2007, Dr. Rajan was the Economic Counselor and Director of Research (the Chief Economist) at the International Monetary Fund (from 2003). Since then, he has chaired the Indian government’s Committee on Financial Sector Reforms, which submitted its report in September 2008. Dr Rajan is a IIT-IIM product, and feels passionately about India.

Dr Rajan was also part of the search committee to select the new dean for the Chicago Booth Business School. When asked why the committee chose Dr Sunil Kumar, Dr Rajan said, “Sunil Kumar is an exceptional academician. He is very young, just 42 years old, but has a matured world view. He will also add a lot to the academic side of the institute by bringing more marketing and operations thinking. Booth, as you know is well known for the best faculty on the economic and finance side. Kumar will diversify it. He is an excellent choice!”

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