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 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!

  • rate this

    Comment number 77.

    Yeah, just like Aung San Suu Kyi's father Aung San who struggled for independence by seeking the help from Japan in WW2.

  • rate this

    Comment number 76.

    @ Comment 74: To my fellow Chinese people, Imperial Japanese are worse than British but for us just the opposite. Germans & Japanese supported our movement against British rule. They said openly "Enemy's enemy is our friend". Read: http://en.wikipedia.org/wiki/Arzi_Hukumat-e-Azad_Hind.

  • rate this

    Comment number 75.

    Comment 70: who punished Nazis? all credits go to Soviets then US leaders, What was ur role in WW2? In Europe, main war beteen German vs Russia, in the east Japan vs US, u played a role in Burma & Malaya where u used Indian blood(British Indian Army) as well. How many ur soldiers died in WW2? both the wars u used Indian resources. read: http://en.wikipedia.org/wiki/Bengal_famine_of_1943

  • rate this

    Comment number 74.

    Imperial Britain vs Imperial Japan

    == which one was worst?

  • rate this

    Comment number 73.

    Comment 67: what do u mean by better history? exploiting innocent people and ruined them? Drinking Indian blood by killing unarmed people? ur acknowledgment is not a mercy to us. What is commonwealth?What its value today? a sporting event only. we proved it is not important to us making a staunch alliance with Soviets (now Russia). If u don't apologise then prove ur glorious past today. Let see...

  • rate this

    Comment number 72.

    A little history lesson for all Asian's commentators

    They did it to the UK population as well - e.g. "Convicts" to Australia or worse, Rochdale "Peterloo" riots 1819,Children down mines /mills, Servants in "Service"(slavery) - the list is endless

    The British did not make the founder of the Mogul Empire, invaded India - not a pleasant time either.

    The "Caste" system was not British either.

  • rate this

    Comment number 71.

    Oh my, you do have a complex, well i'm not going to loose any sleep over it, The Japanese used 30'000 British and empire troops to build a railway, most died.. pretty bad crime, but i don't hate the Japanese, nor do i want reparations

    === really? is it because you love japanese sushi?

  • rate this

    Comment number 70.

    Singing from the roof tops I am, not!
    There are aspects of my history that I am proud of, there are aspects that 'I'm not so proud of, Our treatment of the Irish for instant, but that was not the British people, that was the British state, You want the normal British people to say sorry, that's hollow, we did not do it.
    Did we punish the ordinary German people after WW2 ? NO, Just the Nazis

  • rate this

    Comment number 69.

    We indians never deny the fact that british brought modern education & started social refom (what ever so far),

    == modern education? forget it, people here hardly count the number properly!

  • rate this

    Comment number 68.

    Why not at 64, you are so proud of all that your lot did in the past.

  • rate this

    Comment number 67.

    You Indians are proud people, I wish our history was better, I wish our people did things in a better way, but today, we can not fix the past.

    But together ! Acknowledging what we both know to be true, (without blame,) can allow us to add to each other in a much more positive way.

    Empire is Dead, The commonwealth of nations is still there, Its worth more than the crimes of our ancestors.

  • rate this

    Comment number 66.

    You cant punish the dead old boy, The only way you can win, is to be better than those that came before.

    I will never apologise for the dead's mistakes or crimes, But acknowledgement through history, is already being done, you are apart of that, if you want acknoalgement through the court, I would support it.

    But you cant blame us today, that's not fair.

  • rate this

    Comment number 65.

    At the end u acknowledge that there r some tragic mistakes...yes there r. We indians never deny the fact that british brought modern education & started social refom (what ever so far), but whatever the crime british did, cant be forgotten, not a single one was punished by u. It is not a blame game but the reality.

  • rate this

    Comment number 64.

    East India Company, like all the rest, where Corporations. This one mainly concerned with Tea.... plus wheat, spices, gold, minerals.... trade.

    And yer, i'm sure they ripped you of big style !, but again, not really my responsibility.

    The POINT is, you cant go around expecting ordinary British people to constantly say sorry to you.

  • rate this

    Comment number 63.

    Of course at some point you did not like the idea of being run by a tea company, this lead to the Crown sending a army to protect its trade interests after a rebellion but it also allowed the point to be understood that independence would be a when and not a if, and thus today is real.
    Every nation has made tragic mistakes. I do not think its constructive to blame the people that followed directly


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