Raghuram Rajan's Call For Coordinated Global Monetary Policy A Distant Dream

Further, the monetary policies being followed by the main central banks are also divergent. While the U.S Fed and the Bank of England have rate hikes on their radar, the Bank of Japan and the European Central Banks are haunted by the twin problems of low growth and deflation.

Italy is back in recession, German growth has slowed considerably with bonds offering just close to one percent returns and Japan has witnessed the greatest GDP contraction since the tsunami on the back of the sales tax hike. Both the Eurpean Central Bank and the Bank of Japan are likely to be ultra accommodative for the foreseeable future.

Rajan, who correctly predicted the financial crisis, must not expect the developed central banks to keep India's interests in mind. He must take necessary steps which would insulate India from a global risk off environment if the U.S QE exit strategy falters.

As the U.S dollar strengthens - which it inevitably would in a risk off scenario, the Indian rupee cannot be seen as a "fragile five" EM currency.

Unlike the summer of 2013, when we saw massive outflow of money from EM to DM due to Ben Bernanke's taper scare, our import cover and FX reserves are in a better position. Our current account is also in a better position largely thanks to the gold import restrictions. Lastly and more importantly, there is a more positive and overweight view on India thanks to the historic Narendra Modi led BJP win as compared to August, 2013.

Most central banks are formulating their monetary policies by using "macro prudential" tools. There is no empirical evidence that this would work. The RBI governor cannot turn to such institutions in hope for any coordination at this point of time. He must build India's own firewall against the negative spillover effects of the ultra loose monetary policies followed by the major central banks.

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