Raghuram Rajan spoke extensively of the banking sector stress, defended his monetary policy stance and also said that India should stop competing with China.
RBI governor Raghuram Rajan is known for being witty, vocal about his thoughts and not mincing words on any subject. Rajan, who on June 18 announced that he will not continue as the central bank’s governor once he completes his term in September, told critics not to “write him off”.
During an interactive session at ASSOCHAM, Rajan spoke extensively of the banking sector stress, defended his monetary policy stance and also said that India should stop competing with China. We take a look at 5 things the quick-witted Rajan said:
1) Don’t write me off: Taking a dig at those writing his “obituaries”, RBI Governor Raghuram Rajan today said he will be around “a lot in India” even after leaving the central bank and should not be written off as yet.
“I feel like in the last few days I have read a lot of my obituaries and I’m still here. I’m still here for two-and-half months in this job. After that I’m going to still be around somewhere in the world, probably a lot in India, so don’t write me off,” Rajan said.
2) Take inspiration from China: China should be seen as an “inspiration” rather than “competition”. Rajan hoped that India could reach where China is in the next 10 to 15 years.
“I think we should see China as inspiration, rather than as a competition…as inspiration we should see what a country can do in three decades if it is focused and has very strong faith on what it needs to do,” he said.
“I often see people try to put down China, of course China has its problems…but in three decades it has reached seven and half thousand dollars per capita income that is worth reaching about,” he said.
3) Watching Brexit: On the eve of ‘Brexit’ referendum, Rajan said the central bank is watching the situation and will infuse whatever liquidity is needed to keep Indian markets “well behaved”.
“We are watching the situation and we will infuse whatever liquidity is needed to keep markets reasonably well behaved,” Rajan said.
4) Justifies monetary policy: Taking on critics of his monetary policy, Rajan blamed the record low credit growth to the stress in public sector banks and not due to high interest rates.
“I will argue that the slowdown in credit growth has been largely because of stress in the public sector banks and not due to high interest rates,” Rajan said.
“It is not the level of interest rates that is the problem, instead, the loans already in public sector banks’ balance sheets are stressed, and therefore their unwillingness to lend more to those sectors to which they have high exposure,” Rajan emphasised.
5) Opposes using RBI funds to recapitalise PSU banks: Rajan rejected suggestions for RBI to infuse its surplus funds to capitalise ailing public sector banks — proposed by CEA Arvind Subramanian — saying it is a “non-transparent” idea that can create “conflicts of interest”.
“The Economic Survey has suggested the RBI capitalise public sector banks. This seems a non-transparent way of proceeding, getting the banking regulator once again into the business of owning banks, with attendant conflicts of interest,” Rajan said.
Rajan, however, said rather than this, RBI should pay as much dividend as possible to to the government, which over the past two years has run into billions of dollars.
(With inputs from PTI)