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

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  • rate this

    Comment number 42.

    East India Company went there for business, but soon after the face of an investor turned into an invader and exploitation begins.Our resources were used by British for their benefit, but today it is being mismanaged due to our present rulers (politicians) and bureaucrats. And above all corruption.

  • rate this

    Comment number 41.

    During British rule in India, how many people died due to starvation, how many famines occurred? How much fortunate 330 million people were on that time? British rulers were there not for charity, history knows what happened with our gold, diamond, manpower (slavery) and BLOOD.

  • rate this

    Comment number 40.

    Another government that has stated we are ready.. i wonder whats coming.. like we all don't already know, the downfall of the dollar !

    Once the total amount of needed signals have been revived... Poof, everything that was solid and dollar denominated melts in to air

  • rate this

    Comment number 39.

    if you're working with disadvantaged and marginalized groups in India the only way you can get mainstream attention and funds is to be the recipient of aid from an international organization -- otherwise you're just not taken seriously. This is also true for projects in developing countries like Brazil or Mexico. Aid is needed more for bringing nternational media attention than for actual money.

  • rate this

    Comment number 38.

    @37, this has nothing to do with formula 1! read it properly. How about you return all the money/jewels your country stole from 18th-20th Century before asking us to return your peanut aids.

  • rate this

    Comment number 37.

    Then I presume it's OK to have a few more rapes? That's just a load of crap! The numbers may be slightly more positive, but are far from independent. You don't say bye bye to Formula 1 if it was all that nice and easy. How about actually paying back all the aid credits, lets say by noon tomorrow? Big mouth, little brain.

  • rate this

    Comment number 36.

    #34. And along with the celebrations- stop paying them aid! Same goes for Mugabe.

  • rate this

    Comment number 35.

    Now all he has to do is figure how to force US & EU - owners of IMF/WB to live within their means. Business of World's Wealthiest sporting Best of everything on perpetual Tick with zero plan for repayment, is most unfair to those struggling with compound interest. Genius, that Sanctions & Military predation are all conducted on limitless wishful moolah. "Solution to Poverty is Justice, not Wealth"

  • rate this

    Comment number 34.

    India is safe and open for business. India has enough reserves and will survive the present mal-adjustment. It happens to all the countries. India has resources, a rich middle class, an educated work force and a democratic system which the World should be proud of. We should celebrate India's success in nuclear energy, space programme, medicine just to mention few. Indians oveseas-biggest assets.

  • rate this

    Comment number 33.

    If they are self sufficient, and we all know they are, then why are western countries still providing aid.

    I suspect the aid probably ends up back in the accounts of western companies and the political merry go round into cosy 200k per year for 1 day per week board room jobs continues.

  • rate this

    Comment number 32.

    Well done India!
    About time a country called a halt to the IMF unaccountable rollercoaster.
    That one which No-one actually VOTED for and whose actions have helped in bankrupting Spain/Greece etc!

  • rate this

    Comment number 31.

    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.

    == hopefully this is forgivable--one day?

  • rate this

    Comment number 30.

    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.

    == this is extremely agaist the human rights and awful, sorry to hear that

  • rate this

    Comment number 29.

    Any institutional head needs support from respective heads.In this case national leaders.Besides the five pillars they need to have in place a strict monetary regulation of how they finance government schemes and institutions.Briefly,the guy is the custodian of money paid by people who work,day in day out.These guys need to be accountable to the public at large and display outcomes in open forums.

  • rate this

    Comment number 28.

    India and Japan are two countries completely different, except for their respective stock markets and the influence of new policies. Japan has been extremely volatile, whilst India has also recently experienced similar swings.
    The reason must be hot money chasing short term capital profits. I believe this will continue until Tobin tax is introduced on all financial transactions internationally.

  • rate this

    Comment number 27.

  • rate this

    Comment number 26.

    We do indeed have poverty here.
    But my point is we dont go cap in hand to other countries for aid payments. The UK should not be making aid payments to a country in a better economic state than ourselves. Currently 280 million a year. That money should be spent here.

  • rate this

    Comment number 25.

    Arnab, do we have a bit of an axe to grind here? maybe we should send you the bill for the railways, roads, legal systems, universities etc?

  • rate this

    Comment number 24.

    'you can't always get what you want'
    because of the
    'tumbling dice'
    of the international investment market
    but at least you're trying to
    'start India up'!
    maybe next week it will be
    'Rupee Tuesday'

  • rate this

    Comment number 23.

    @20 NonLondonView - In UK too there are many freezing to death every winter because they couldn't afford to pay their raising energy bills. But the government is very much interested in spending glossy shiny fancy projects like HS2 rail, let’s not forget about that.


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