Ex-RBI Governor Raghuram Rajan views on Leadership and Startups

Raghuram Rajan
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Leadership plays an important role in all sphere of life whether its politics or management, it helps to maximize efficiency and to achieve organizational goals.

Emphasising its importance former governor Raghuram Rajan said that India needs leadership, not followership.

“We really need is leadership, rather than followership. Leadership, which says okay I hear you but even though this is against your short-term interest, this is in our collective long-term interest and we should go this way. So I do not see leadership as always listening, but I see it as sometimes convincing and saying we must move in this direction because we have to, it is needed,” said Raghuram Rajan to TOI in an interview on Tuesday. “What we have to do is find a way for persuasive leaders to take people on the right path.”

He earlier praised the Indian startup community for creating thousands of jobs and emphasised the importance of an easier business environment to support young companies. In his earlier speech given in Bhubaneshwar on May last year, the former chief economist spoke his mind on potential od startups and challenges they face in India.

“Graduates increasingly want to start businesses or work for startups rather than join an established consultancy or a bank. What is now needed was to continue improving the environment so that everyone had a better chance,” outlined Rajan among many suggestions he offered.

India need less regulation

The UK, where the regulation is light, and Italy, where regulation is very heavy with lots of inspectors and inspections. Turns out, when you look at the firms that emerge in Italy versus the UK, firms emerging in Italy typically start out much bigger (these aren’t formal firms) while in the UK they start out much smaller. But in the UK they grow much faster and much bigger. In Italy, they stay small.

So we tried to understand this, and after more research, the answer was the following: When you have a lot of regulation, most people try and stay informal. The few that become formal do so only when they have enough capacity to manage the regulations. But because of the weight of so much regulation, they don’t want to grow very fast because regulations increase proportionately as you become bigger.

Finance still a problem

In India, small banks tend to be much more comfortable lending to small enterprises. Large banks tend to be much less comfortable and entrepreneurs also tend not to go to the large banks to borrow.

Startups need safety net

We need to create a safety net, not one which we can’t afford, but a minimum safety net that allows people to go out and take risks. And workers have the willingness to join small enterprises where there is a high risk of failure but knowing that if it fails they have something to fall back on.

Rajan was the 23rd Governor of the Reserve Bank of India (RBI) between September 2013 and September 2016. Between 2003 and 2006, Rajan was the Chief Economist and Director of Research at the International Monetary Fund.

He was also featured among Time magazine’s ‘100 Most Influential People in the World’. Time said he is among a rare breed of economic seers who steered India through the global crisis and fallout.

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