The most important indicator of whether India will crash is the sweat on Raghuram Rajan’s brow.

The new Reserve Bank of India governor arrived in Mumbai this week with a bang, announcing a slew of reforms to free up and expand the banking sector and to draw more Indians into the formal financial system. The news impressed traders, who staged much-needed rallies in both stocks and the rupee on Sept. 5.

India’s economic crisis, however, is still simmering, and Rajan still resembles the proverbial frog in the pot: He may not realize he’s cooked until it’s too late.

Right now, markets are responding to his decisiveness -- a refreshing change from the political dithering in New Delhi. The hope is that the respected University of Chicago economist, who accurately predicted the 2008 global meltdown, will turn out to be as good at managing crises as foreseeing them. India could yet get a handle on its problems. With bold steps to curb public borrowing, address the external deficit and contain inflation, Indian politicians could restore international confidence.

Banking reforms alone, however, aren’t going to bring foreign investors back or prevent the rupee from falling further. This is Rajan’s real challenge: He is stepping into a stew of financial chaos, missed opportunities and political paralysis that has been simmering for years. It’s no longer inconceivable that India could become the first of the BRIC economies -- Brazil, Russia, India and China -- to lose its investment-grade rating. And Rajan may not be able to do anything about it.

No Control

First of all, the RBI’s suave new governor has no control over what really ails India. Sure, he can try to defend the rupee and get a handle on India’s 10 percent inflation. He can use his international credibility to soothe markets as Ben S. Bernanke and the Federal Reserve withdraw stimulus. Even the most respected central banker, though, can’t stop politicians from spending without accountability. Rajan can’t root out corruption, make the government more transparent, or attack the red tape that is deterring investment and strangling growth.

Rajan can’t tweak tax policies to broaden revenue streams and encourage an explosion of startup companies. He can’t reform education and training programs, or see to it that India has as many toilets as mobile phones. He can’t spearhead the improvements in infrastructure that are needed to create more manufacturing jobs. He can’t strike grand bargains between the parliament in New Delhi and powerful state leaders, who are at odds on virtually every upgrade the economy needs.

The central bank has no say over barriers to imports and investment. It can’t nudge executives to improve corporate governance. It can’t reduce India’s reliance on foreign energy at a time of rising tensions in the Middle East or hold off the competitive threat from China. All Rajan can do is treat the symptoms of India’s funk, not the underlying sickness.

The man who must address the core problems, Prime Minister Manmohan Singh, is a spent force. Those of us -- me included -- who hoped Singh would use his sizable re-election mandate in 2009 to renew the drive for reform have been sorely disappointed. After myriad scandals and years of policy drift, India’s economy seems barely better off than it was in the early 1990s, the last time the rupee fell this sharply.

The double-digit output India experienced in the past decade was, in some ways, a debt-driven mirage enabled by short-term capital flows. High growth rates papered over India’s cracks and masked the government’s failure to narrow the gap between rich and poor as well as translate rapid output into good-paying jobs. Now that growth has slowed to a paltry 4.4 percent, all of India’s problems are being exposed.

On Hold

However determined and decisive Rajan may be, the real reforms that India needs are on hold until May’s election. Palaniappan Chidambaram -- serving as finance minister for a third time -- understands India’s troubles as well as anyone. But he is a possible successor to Singh should the Congress party win at the polls. That means that the two men most pivotal to India getting its act together probably won’t be doing anything bold or creative between now and then.

For the next nine months, India’s rot will only deepen. That’s about 270 days to hit new lows on the rupee and for rating companies to mull downgrades. Wasting this time might seem less irresponsible if India had enjoyed a surge of reformist energy in the last 10 years. Instead, it’s been a lost decade for change.

Singh is in St. Petersburg, Russia, for a summit of the Group of 20 nations. It’s striking how the global climate changed markedly in the last year, before BRIC leaders even knew what hit them. More than most, India is paying the price for not noticing how hot the water was getting.

(William Pesek is a Bloomberg View columnist.)

To contact the writer of this article: William Pesek in Tokyo at wpesek@bloomberg.net.

To contact the editor responsible for this article: Nisid Hajari at nhajari@bloomberg.net.