RBI Governor Rajan: India isn't in danger of crisis


So-called rock star central bank governor Raghuram Rajan says India does not need the IMF

The new governor of the Reserve Bank of India, Raghuram Rajan, told the BBC in his first international interview that India has enough foreign-exchange reserves to safeguard against a repeat of the 1991 balance of payments crisis.

Mr Rajan said that India has enough money to pay for all of its short-term debts tomorrow if it needed to, as it has reserves that are equal to 15% of GDP. This is a key difference from two decades ago when the country was rescued by the IMF.

He said that a country with $280bn (£175bn) in reserves can finance itself, and points out that India's external debt is about 22% of GDP. He said that very few countries with such low level of debt has had an external crisis. Mr Rajan was also adamant about anyone who suggests that India should seek IMF assistance should know that there will be "no IMF, it's not going to happen". And that India is a creditor to the IMF.

He also points out that the current account and fiscal deficits are falling, which are the sources of concern and why some investors had left the country. It had resulted in the rupee hitting an all-time low shortly before Mr Rajan took office in early September. Since then, markets have risen strongly and the rupee has strengthened and is now approaching 60 rupees to the US dollar, leading what's been dubbed the Rajan rally.

Quite unusually for a central banker, Mr Rajan also revealed that although he tries not to comment on the appropriate level of the rupee as he "knows when it has gone too far". In his opinion, 68 rupees per US dollar that was hit at the end of August was "too weak", while 50 is probably "too strong" relative to the fundamentals of the economy.

In terms of getting the balance right between fighting inflation and supporting economic growth, Mr Rajan describes the process as "muddling through".

He sees the challenge of inflation, especially for food, as stemming from the growing demand of a population that is getting richer and demanding more foodstuffs while supply lags behind. He explained that this is why he has raised rates twice in his first two months in office, which is to reduce demand a little bit to control inflation while production catches up.

Of course, to encourage more production in India will require investment. Mr Rajan recognises this as a structural challenge for India. For a country at this level of development, manufacturing is a much smaller part of the economy as compared with services, which are about 60%.

He sees four impediments to India growing its manufacturing sector, which are infrastructure, education, regulation, and access to finance. He said that the central bank governor can only affect access to finance. Thus, Mr Rajan acknowledges that there is a limit to what central bankers can do, but stresses that there are other "rock stars" in the Indian government that are taking their agreed reform plans forward.

Mr Rajan also gave a timeframe for achieving his "five pillars" that is to improve the monetary policy framework, reform the banking system, liberalise financial markets, increase financial inclusion, and sort out financially distressed institutions. Mr Rajan says that he has a five-year timetable to achieve these aims and changing the financial sector will help India to grow.

The full interview with India's "rock star" central banker and what he thinks of that moniker will be broadcast on Talking Business with Linda Yueh on 1 November.

Linda Yueh Article written by Linda Yueh Linda Yueh Chief business correspondent

The Bank of England's theory of everything

Setting interest rates is not the only thing the Bank of England focuses on anymore. But what does the newly expanded powers of the central bank mean for rates?

Read full article

More on This Story

More from Linda


This entry is now closed for comments

Jump to comments pagination
  • rate this

    Comment number 82.

    Comment 81: Nothing is off-topic, all r related to our economy, read all the comments made by ur fellow people, then deliver an expert comment. We want to scrutinise our economic situation, that's why we recalled the past. R u bothered about Indian economy in turn Indian blood?

  • rate this

    Comment number 81.

    Linda, do you have a view on Rajan's interview? You have simply reported what he said.
    Surely it would be more informative and interesting if you had included a short critical assessment or evaluation of his thesis?
    Most posts are off-topic which may reflect the lack of interest your article has generated.

  • rate this

    Comment number 80.

    All of we want peace; Nazis & Japanese surrendered, Soviets broke down, eastern block freed, U LEFT INDIA WHEN U REALISED U LOST CONTROL OVER BRITISH INDIAN ARMY AFTER BOMBAY MUTINY (THE EFFECT OF INA), I m not signing out but I can wake up nights after nights to get the answer from u(what u did with us) even blood coming out from my eyes..., it is 1:30 am nw....

  • rate this

    Comment number 79.

    1. jonathanbw

    I'd love to know if ...".

    I should imagine it's as likely as a Rock Star saying "Don't bother with my tour: the band's awful...".


    Well then get the aforesaid rock band to tour India

  • rate this

    Comment number 78.

    I see the minds of the young are not worth the thoughts of the old, Maybe years of success in the end will humble you like the rest.

    May all you mistakes be perfect, may everything you do be right, for surly the history of us all will be written by what you say is right.

    Signing out ! Peace!


Comments 5 of 82



  • A very clever little girlBrain gain

    Why are people getting better at intelligence tests?

  • BeefaloBeefalo hunt

    The hybrid animal causing havoc in the Grand Canyon

  • A British Rail signBringing back BR

    Would it be realistic to renationalise the railways?

  • Banksy image of girl letting go of heart-shaped balloonFrom the heart

    Fergal Keane on the relationship between love and politics

  • Don Roberto Placa Quiet Don

    The world's worst interview - with one of the loneliest men on Earth

Copyright © 2015 BBC. The BBC is not responsible for the content of external sites. Read more.

This page is best viewed in an up-to-date web browser with style sheets (CSS) enabled. While you will be able to view the content of this page in your current browser, you will not be able to get the full visual experience. Please consider upgrading your browser software or enabling style sheets (CSS) if you are able to do so.