This Article is From Dec 27, 2014

Shouldn't Over-Invest in Infrastructure: Raghuram Rajan to Prannoy Roy

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 Risksto 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