Amid the ongoing slowdown, former RBI Governor Raghuram Rajan said India needs a new generation of reforms and mere tinkering of rates won’t work. The Indian government has the required political strength and power to undertake reforms, he added in an interview with CNBC. Raghuram Rajan suggested the Narendra Modi-led government to prioritise the cleaning up of Non-Banking Finance Companies and to recapitalise them. He also said that the process of cleaning the NBFCs should be accelerated to improve the country’s financial system. Underlining that the seeds of the non-performing assets mess were sown in 2007-08, he said that the recapitalisation has been done in the banking system but the NBFCs are still deprived of it, which makes it difficult to improve the condition of the overall financial system.
Earlier this week, Raghuram Rajan criticised the Modi government, calling demonetisation a misguided concept and the GST as a poorly implemented step. He also asked the government to find the cause of the slowdown from within the economy and not to look at the global factors for all the reasons.
Also Read: Raghuram Rajan says suppressing criticism is a sure fire recipe for policy mistakes
The former RBI Governor also cautioned in a hard-hitting blog arguing that people in authority should tolerate criticism and suppressing criticism is a “sure-fire recipe” for policy mistakes. He also said it is only criticism that prompts the government to take period policy course correction.
Meanwhile, amid the US-China trade war, the Fed has cut interest rates for the third time this year. Raghuram Rajan said that they certainly feel they have done enough to buy insurance against a recession and they have also said they will wait and see, so at this point, pause seems appropriate.
