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

Why markets fear Argentina's debt crisis

If Argentina defaults on its debts again, there could be major repercussions for the global bond market.

Read full article

More on This Story

Comments

This entry is now closed for comments

Jump to comments pagination
 
  • rate this
    +6

    Comment number 22.

    A central banker raising interest rates to constrain inflation!
    Goodness me!
    India must have a far better economy than the UK.
    Over here we practise financial repression and call it a recovery.

  • rate this
    +1

    Comment number 21.

    If British are so interested about India & its economy, why they are not asking their Govt. to return back the Indian gold/diamond what they looted during 1757 to 1947 which now belongs to Bank of England Treasury, will they ask to Cameron govt. to give compensation for the millions of Indians who were killed either by bullets or by famine. Can they do that?

  • rate this
    0

    Comment number 20.

    3. 40Watt has hit the nail on the head.
    India is a rich country, it can afford a space programme and lots of shiny nuclear weapons.
    It happily accepts aid from us.
    But it too mean to spend its own money for the beneift of its own people, large numbers of whom live in poverty.
    Its not ignorance to point out the facts.

  • rate this
    -1

    Comment number 19.

    “In terms of getting the balance right between fighting inflation & supporting economic growth, Mr Rajan describes the process as muddling through".
    Not a choice of words to exactly inspire confidence is it?
    Sounds more like somebody with their fingers crossed hoping for the best to me.
    Bankers everywhere are not to be trusted. When they say words such as "muddle through" it's time to take cover

  • rate this
    0

    Comment number 18.

    @17 fortheloveofgod, Thank you, mate. Since India has more money than UK, I guess it is Indian's turn these days to be a bit arrogant. Look how England cricket Board made to give up on their ego, so that their players can play in IPL!. Good example of money power from India, isn't it?

  • rate this
    -2

    Comment number 17.

    @16. Jack123
    And I think arrogance suits you well, too.

  • rate this
    +1

    Comment number 16.

    @40watt, I think Ignorance is best suits you very well. Your statement clearly shows a huge lack of knowledge about India.

  • rate this
    0

    Comment number 15.

    India has enough reserves to pay their debt? Good. No need for the UK to pay anything to India anymore to find their space and nuclear programs.

  • rate this
    0

    Comment number 14.

    At least this guvnr recognizes his limits, compare that to the UK: the Chancer of the Exchecker here has abdicated all responsibility for the Economy to a Canadian, paying him huge salary & benefits, and in effect outsourced the Economy to the Tory principle of "any qualified provider".

  • rate this
    +2

    Comment number 13.

    Well King repeatably made negative remarks every time the £ showed any signs of recovery. This did work foreign investors were put off investing and the £ went down in value. I am sure the BBC has a log of comments made and can check what I observed with the value of the £. Its no wonder our growth has not been what was expected during 2008-12. Its no wonder investment loans were hard to get.

  • rate this
    0

    Comment number 12.

    What does it mean by British help? A few people/organisation do some charity in order get an exemption from tax. The amount they do charity in India in comparison to what they looted from India (gold, diamond, manpower as a slave & BLOOD and forcing us in a death machine in the name starvation) is nothing.

  • rate this
    +4

    Comment number 11.

    @3 40Watt@ Extreme poverty agreed . Outsiders contribute billions???

    Could you name who those outsiders are and how much they contribute that make into billions. Former Indian President have already said that India doesnt need any aid from Britain and they are peanuts when compared to the amount that the country actually spends to lift poverty, some of which are swollen by corrupt politicains.

  • rate this
    +1

    Comment number 10.

    If the asset pools which goverments accumulate in QE are valued mark to market, there is an unfortunate problem. Robert Heintz, as was pointed out by those whofew who really understood in 2007/2008, should have been shot for what he allowed to be imposed.

    Revalue $1 billion at Market to Market.

    Mark to market destroys investment to benefit traders. It is suicide.

  • rate this
    +1

    Comment number 9.

    Which ever view you hold of our global financial contributors and state of play, this http://www.zerohedge.com/news/2013-10-29/michael-pettis-cautions-chinas-hidden-debt-must-still-be-repaid is worth consideration. Everyone has a slant and angle but it is good thinking.

    The point. It is the size of rescues, example QE projects, which are deadly, once they accumulate. Revolving foor, please.

  • rate this
    +1

    Comment number 8.

    Another US opportunity to make some money.

  • rate this
    -2

    Comment number 7.

    I wonder why RBI governor has to have all the say and not Finance Minister a single word?Also why does he have to play with interest rates so much.Also why Rupee get the less value against other currancies?i

  • rate this
    +4

    Comment number 6.

    @40Watt: I don't know where on universe you living. you must be still stuck at 3 decades ago. Get your facts right on economy and poverty.

  • rate this
    0

    Comment number 5.

    The RBi Govenor purported quote that he would be able to provide access to finance is rich indeed. Can he tell us How, and Where and Which bank would assist in providing access to capital in manufacturing industries? Howabout reducing the subsidy to farmers and who bleed the country's exchquer? What about broading the country's tax base amongst others?

  • rate this
    +3

    Comment number 4.

    When the bankers tell you everything is fine, like they did in 2007, you know the opposite it true.

  • rate this
    -6

    Comment number 3.

    Extreme poverty in India, to which outsiders contribute billions, yet this man boasts of £175 billion in reserve!

    International aid at its best.

 

Page 4 of 5

 

Features

  • A painting of the White House on fire by Tom FreemanFinders keepers

    The odd objects looted by the British from Washington in 1814


  • Chris and Regina Catrambone with their daughter Maria LuisaSOS

    The millionaires who rescue people at sea


  • Plane7 days quiz

    What unusual offence got a Frenchman thrown off a plane?


  • Children testing a bridge at a model-making summer school in Crawley, West SussexSeeding science Watch

    The retired professor who turned village children into engineers


  • Krouwa Erick, the doctor in Sipilou town at the border of Ivory Coast and Guinea - 27 August 2014Bad trip

    The Ebola journey no-one in Ivory Coast wants to take


BBC © 2014 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.