RBI governor Raghuram Rajan on Friday stressed on financial conservatism while calling for policies that will develop the economy at a time when global markets and past success stories have been adversely affected by uncertainties and rapid expansions.
While Rajan took pains to explain that his speech should not be inferred as an indication of what to expect at the forthcoming monetary policy review meeting on September 29, the RBI governor underscored the importance of being conservative at an industry meet organized by the Confederation of Indian Industry.
The RBI’s monetary policy review is expected to decide on whether the central bank should cut rates further, as desired by industry and government. Rajan has so far maintained that he needs to evaluate various data points on inflationary trends before taking any final decision, stressing on caution.
Referring to fellow BRIC nation, Brazil, Rajan said that a few years back the Latin American country was growing at about 7.6% and had also discovered vast reserves of oil under their sea. But a few years of too fast expansion and rapid interest rate cuts had converted Brazil into an over-leveraged economy and finally downgraded it to junk status.
“India is an island of calm in an ocean of turmoil. The US Federal Reserve had to hold on rates as global economy was uncertain. The global picture does not look healthy,” Rajan said at the conference which also saw the presence of senior business leaders such as Bajaj Group chairman Rahul Bajaj and others.
Linking diverse factors such as profitable segments at the bottom of the pyramid – as elaborated by noted management guru C K Prahlad – with the recent RBI moves to allow Payments Banks and Small Finance Banks to reach the unbanked and unserved, the RBI governor touched upon multiple factors affecting the economy in his 30-minute long address, including conservative growth policies for the industry without sops. “India must resist measures like interest rate subvention. We have to create a business environment. Business should then run on its own,” said Rajan.
The RBI governor also called for speedier bankruptcy laws that can put non-performing assets back on track and also called for promoters to participate in the restructuring process.