"Prime Minister Manmohan Singh has approved appointment of Raghuram Rajan as Governor of RBI for a term of three years," an official statement said.
Rajan, a former IMF chief economist, was appointed as the Chief Economic Advisor in the Finance Ministry in August last year.
As the new RBI chief, Rajan will have a challenging time as he will have to battle the declining rupee, sliding growth and rising retail inflation, amid global economic uncertainty.
Known for his frank views, Rajan was also honorary economic advisor to the Prime Minister. He was acclaimed for predicting the 2008 global financial crisis.
An alumni of IIM-Ahmedabad and IIT-Delhi, Rajan did his doctorate from the Massachusetts Institute of Technology. He was professor at the University of Chicago's Booth School of Business before taking over as CEA.
Rajan was also involved with the report on Financial Sector Reforms, which was authorized by the Planning Commission.