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A statement by the finance minister confirmed the appointment on Tuesday.
Rajan will replace Duvvuri Subbarao whose term expires in September this year.
The new governor has previously been chief economist at the International Monetary Fund (IMF) and a professor at the University of Chicago.
Rajan’s appointment comes at a time when the Reserve Bank of India is expected to take additional measures to stem the rupee slide.
The rupee fell to a record low on Tuesday to 61.80 to the dollar.
Rajan has placed trust in the services sector of the country over a push for manufacturing.
“We can create our unique path by emphasising on things we are already good at, like services, rather than creating a manufacturing revolution,” he said on Sunday.
The new governor has been a believer in the India growth story despite the loss of investor sentiment and slowing GDP.
“People get pessimistic about India’s growth by looking at last year’s data of 5 per cent (growth rate). When we look at India for the next 20 years, you can only be optimistic, because there are so many …easy way to grow, which is moving out people from agriculture to other kind of businesses like manufacturing or services. It does not need huge government genius to do this,” Rajan said recently.
With inputs from Agencies