Rajan offers radical vision of India's future Raghuram Rajan looks relaxed as he strides into a conference room on the 18th floor of the Reserve Bank of India in Mumbai, settling down in front of more than a dozen portraits of the institution's former governors. But while his central bank predecessors were often seen as cautious and risk-averse, Mr Rajan has bolder plans: a wide-ranging and potentially radical agenda to curb inflation, boost competition and challenge corporate vested interests throughout India's fast-developing financial sector. The former IMF chief economist says crisis management dominated his early months, taking over in early September in the midst of India's worst financial crisis in two decades, and only days after the rupee had plunged to its lowest ever level against the US dollar. His arrival is credited with a market turnround - dubbed the "Rajan rally" by some analysts - as investors took confidence from his stellar academic resume, calm public persona and reputation for imaginative, reform-minded thinking. Mr Rajan says the worst of that period of turmoil is over, with India's currency stabilised and its economy gradually, boosted in part by recent "stupendous" increases in exports. "We've convinced the investing world that the current account deficit is under control, and that India is in no danger of a crisis, a la Latin America," he says. Stubbornly high inflation is the next task - his "number one priority" - a fact Mr Rajan has driven home already by twice raising interest rates. But this hawkish turn is complicated, he says, by a new divide between India's otherwise-wealthier urban areas, which have suffered during the country's recent slowdown, and its rural heartland, where wages have risen and inflation is less serious. "You're seeing two different economies . . . a little bit like between northern Europe and southern Europe," he says. This means striking a tricky balance: targeting inflation, but without choking off a tentative recovery, in the manner of former US Federal Reserve chair Paul Volcker in the early 1980s: "If you raise interest rates too much, if you do a Volcker - you kill the supply side - and then you are in a bad situation." Yet it is Mr Rajan's broader agenda to increase competition and tackle corporate indebtedness that marks the most striking departure from his more circumspect predecessors. There will be a "dramatic remaking" of the banking system over the next few years, he says, with new private-sector bank licenses and a broader role for foreign institutions, coupled with a push to "reform" the sedate state-backed lenders that still dominate India's financial system. The roughly two-thirds of poorer Indians who lack a bank account will be a priority as well, where Mr Rajan is optimistic about the potential of new technologies, such as payment systems on mobile phones. More controversially, he plans to focus on India's problem of non-performing corporate loans, which have risen sharply during the recent downturn. Many such loans were provided for viable projects in areas such as infrastructure, and will ultimately be recovered, he says. But a deeper problem often lurks behind them, in which some Indian industrialists "have been benefiting on the upside in good times [but] rely on banks to take the brunt of the hit" when the economy deteriorates. "It's heads I win, tails you lose, which to my mind eventually creates public anger and distrust of the banking system, and we can't continue along that path," he says. You have to help the firms that are in genuine problems, but make it clear that you're not a piggy bank for them. Tougher lending rules are not likely to be popular with heavily indebted conglomerates, Mr Rajan says, while noting again a balance must be struck: "How do you make sure that you go after - in US terminology - the bad guys, while ensuring that the good guys are not harassed, and in fact have easier access to credit?" Part of the answer lies in deepening India's financial markets, he says, ushering in a greater role for private equity and other forms of international "long-term capital," such as pension funds. New entrants could take the strain off overstretched domestic banks, while Mr Rajan says there is also "a tremendous opportunity" for foreign money to help restructure assets in India's stressed corporate sector. India has become increasingly global over the past decade, Mr Rajan says, and it is a journey he hopes to continue by welcoming international finance as part of plans to help build "a more continental and open economy" during his tenure at the RBI. For all this radicalism, however, he is a realist too: "I have to be careful," he says, to avoid a backlash and carefully prepare the ground for a new era of competition, in a nation still often hidebound by antiquated regulations. I am told that there is a rule in [the Indian state of] Uttar Pradesh that some factories still should have a snake trap. Because in British times they were in the middle of the jungle, and snakes used to come in. The message behind the story is clear: India's is an advanced, global economy, but one with plenty of room for rapid modernisation too. And here, Mr Rajan is intent on moving quickly.