Reserve Bank of India Governor Raghuram Rajan interacted with students at a session organised by NDTV. Speaking to Dr Prannoy Roy, the RBI chief said that though the Indian economy is not in a phase of strong growth as yet, there is high possibility that the country will see strong growth over next two years.
Here are the key things that Dr Rajan said:
On Markets and Economy
- Do not see a bubble in Indian markets
- But faster rise in interest rates in the US could be a risk to global asset prices
- Expectations are that the interest rates in the US will rise slowly given the global growth remains capped at fairly low levels
- We are not in a phase of strong growth as yet
- But high possibility that India grows reasonably strong over next few years
- We will see pick-up in growth
- Growth can't be instantaneous
- Shouldn't over-invest in the infrastructure sector
- Lower oil prices helping inflation come down
- Have to try to reduce the stress in the financial system
- India has benefited from the external environment
On Risks to Rupee
- RBI is not targeting any value for rupee but wants to curb volatility
- RBI is not trying to protect a particular level of rupee
- Emerging markets are susceptible to volatility as the world exits the very accommodative monetary policy, but India has made major improvements since we experienced last round of volatility in July-August last year
- We have more reserves; we have much smaller current account deficit
- Inflation is lower.
- Oil price fall has been helpful in this regard
- Indian currency has more respectability now because inflation associated with it is significantly lower
- Hopefully, we are on a strong growth path
- We look different today from other emerging markets
- I am hopeful that after an initial bout of volatility, we will come through and people will put their money back into India
- I hope that the November trade deficit was one-off and expect gold imports to fall
On Interest Rates
- Don't want to flip-flop on interest rates
- Don't think the RBI has missed the bus to lower rates
- The concerns are how long oil price will stay low
- Once the disinflationary process is well underway, we will have the ability to be more accommodative in a sustainable way
- RBI is not against growth, but looking for sustainable growth
- Interest cut in India will show an impact 3 quarters later
- In India, supply has been more constrained while demand has been strong
- Have to fully solve the supply-side problem to contain inflation
- The best way we can aid growth is by keeping inflation low
- RBI is not against growth but it is for sustainable growth
- But our horizon is sometimes longer than those who want us to cut rates
- We should avoid blaming RBI for standing in the way of growth; there are many other factors that are needed to boost growth
Two Things He Wants In Budget
- The government's emphasis on fiscal consolidation is a strong signal to the investors that will help both in terms of inflation and interest rates
- GST will also be a big step forward
On 'Make in India' Push
- Need to create the conditions for 'Make in India'
- Let the entrepreneur decide where he wants to go - whether to manufacture for India or for exports
- There is a lot the government needs to do
- I am not an export pessimist, but I am against industrial policies that promote undervalued currencies and export champions
- The world has changed a lot
On Crony Capitalism
- There are concerns about crony capitalism
- Crony capitalism is a phase that every country has to go through
- We have plenty of good business people in India
- What is worrying is a few people muddying the pool and making it difficult for everybody else
- Debt is a sacred contract; if you borrow you have to repay
On Public Sector Banks
- There were situations of non-transparent lending
- Need to figure out the way to clean up governance in PSU banks
- Expense structure in public sector banks is sometimes higher than private banks
- There is a need to figure out how to improve debt recovery for public sector banks
- Singapore has state-linked banks
- Need to improve the quality of boards in banks
- Need more professionals in public sector banks
On E-Commerce
- There are tremendous possibilities in e-commerce
- Uber was using a way of bypassing RBI regulations
- No matter who you are, you can't violate regulations
- New technology needs some adjustments in terms of regulations
On Cashless Currency
- Down the line, we will be moving towards a cashless society
- Believe that virtual currencies will be much safer and get better in future
- There are security issues in Bitcoin
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