RBI Governor’s Forthright Address at Delhi Economics Conclave: A Good Augury

“A stable government post elections cannot be taken for granted”, thus cautioning the nation, Dr. Raghuram Rajan, Governor of RBI, urged all the political parties “to work together today to ensure that any government that emerges post elections has the time to come to terms with the challenges facing the Indian economy, otherwise, markets and rating agencies may not be willing to cut new government much slack” at the 4^th edition of Delhi Economics Conclave that assembled on 11^th instant.

He further warned that “any slowdown in putting large stalled projects back on track before elections or any additional fiscal slippage will only amplify the large challenges that the new government will have to face.” He therefore opined that “it may benefit the nation enormously if Parliament passes key bills and if current authorities take action to improve growth and fiscal health, including raising diesel prices to market levels and eliminating other poorly targeted subsidies.”

Airing his discomfort at the current level of permissions—40 permissions are to be obtained by an entrepreneur from various statutory authorities to start a new business—Dr. Rajan also asserted that “We need to review our regulation and bring then in tune with current times”, if we want to make starting a business hassle-free and in turn speed up investments.

Turning his attention to the mounting pressure of NPAs on Public Sector Banks, Dr. Rajan said: “For willful defaulters, or the category that we call uncooperative defaulters”—borrowers who are able but unwilling to pay, or those who had diverted loan proceeds for uses other than the initially stated intention— “future borrowing will become more expensive.”  At the same time, he assured to “put out a discussion paper … The key element [will be] to deal with distressed borrower… it will focus on recognition, resolution and recovery (of assets).”

The Governor had also assured the nation that “we are much better prepared to deal with any possible tapering, partly because we built some reserves… Current account deficit numbers are far better, far healthier than in May. But we would not say we are complacent, as there could be unexpected effects of tapering” by the Fed Reserve. 

He had also informed the conclave that RBI would roll out measures to improve liquidity and depth of the government securities market in the coming weeks. He also promised to strengthen the corporate bond market.

Interestingly, assuring the conclave that RBI’s focus will remain on controlling inflation, Dr. Rajan said: “It is proving very costly to our economy in terms of savings and investments. We need to bring inflation down. No single data or point or number will determine our next move, but our effort, firmly, is to control inflation.”

What a candid review of the immediate requirements of the ailing economy! It is heartening that the Governor, driven by the long-term interests of the nation, has come out openly to air his well-inferred observations about the current status of Indian economy and what needs to be done for improving its prospects, particularly alerting the political parties to the priorities of the economy/nation. As a man of an average perception about the conduct of the Central Banks, I marvel at the bold initiative of the RBI governor in sensitizing the political system to the likely scenario that could emerge post general elections and urge them to do what is most urgently required to be done for keeping the economy growing with less and less hiccups. 

Now the big question is: Will the political parties, who are known for pursuing their own agenda, often meant for furthering their own progress rather than subordinating themselves to the national cause, act on the Governor’s sane advice?

 Image: Courtesy, Business Line