While most have been looking endlessly to New Delhi for the next big wave of reforms, RBI Governor Raghuram Rajan took everyone by surprise by announcing a slew of 1991-style reforms, reforms he said, tongue firmly in cheek, were part of his short-term timetable for RBI. Though the discussion over the past few years, including between the Centre and RBI, has only centred around interest rates, Rajan hit the ground running, announcing a schedule to implement, by and large, the recommendations his committee had made in 2008—A Hundred Small Steps—to help fix the financial sector. Recommendations, he had said then, could add between one and two percentage points to GDP growth. Rajan began his reforms push even before the scheduled 5.30 pm press conference by rolling back some RBI measures of August 14 which, rightly or wrongly, the markets had perceived as the beginning of capital controls—till then the rupee had depreciated in tandem with other currencies, but after that as our chart on page 2 shows, the rupee depreciated even faster. Rajan also announced a delay in RBI’s next policy so that he could accommodate the impact of the Fed meeting—a signal, if any was needed, as to how much attention the new Governor plans to pay to detail.
It is not clear as to whether Rajan will, on September 20, start rolling back the liquidity tightening brought on by his predecessor—he should, given that while it has not saved the rupee, it has raised interest rates so much, India is in danger of slipping into a vicious cycle of earnings downgrades and FIIs pulling out. But Rajan announced a clean break from the central government’s thinking. While the Centre used RBI and Sebi to strangulate currency derivatives in a mistaken attempt to save the rupee’s collapse, Rajan said financial markets needed more depth, not less. He embraced the idea of bringing in new players, not just through new bank licences which are to be issued by January, but promised to go ahead with plans to bring on-tap licensing, creation of niche banks, ensuring mobile banking happened. For much of