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HindustanTimes Thu,18 Sep 2014

I am not a superman: RBI Governor Raghuram Rajan

PTI  Washington, October 13, 2013
First Published: 10:00 IST(13/10/2013) | Last Updated: 13:27 IST(13/10/2013)

RBI Governor Raghuram Rajan, who has increasingly been portrayed as a "rock star" after occupying the current position, both in the national and international media, has said that he is "not a superman" acknowledging "little bit" of euphoria surrounding him.

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"Expectations are high. Clearly I am not a superman. There is a little bit of euphoria in India," Rajan told a Washington audience on Sunday at an event organised by the Institute of International Finance.

"I have a wife and two kids," said the RBI Governor in the city to attend the annual plenary meeting of the International Monetary Fund and World Bank.

"We can do more what a central bank in an industrial country can do. But we can in some ways do less. On where we can do more, clearly there are a lot of low hanging fruit in the financial sector," he said, adding, that the reforms in the financial sector can be incredibly positive for growth going forward.

He said that the emerging market economies are less understood. Rajan said the Union Government is doing a "fair amount of reform", which needs little bit of time for the results to show up.

"I think, with the financial sector reforms, couples with the real sector reforms, the growth turn around should be on its way," he said.

Speaking on India's upcoming general elections, he said some of the constraints on the fiscal side make it hard to see the usual problems in an elections.

Populist spending going in all short of direction makes it is hard to do that given the kind of fiscal situation and given the commitments made by the government in terms of fiscal deficit, Rajan said.

"So I am not extremely worried about that aspect of the elections," he said.

"The problem of being in academics and then getting into these positions is there is a well document trail of thinking, when you are allowed to thinking," he said.


India not selling US assets

Expressing full confidence in the American economy and asserting there are low chances of US default, Rajan ruled out selling out the Indian assets in the United States.

The Indian investment in the US treasury bills is estimated to the tune of $59.1 billion.

"We (India) do not worry about that issue (US defaulting). We are not selling our US assets. We are holding on to them," he said.

"I have to say, whatever default, will be a technical default. We do not expect the US not from my understanding, because repayments can be prioritised, unless there is a sudden stop and markets stop taking new US debt meant to refinance the old debt there is no chance that the US will default," he said.

Rajan said it would be good for the US to adopt fiscal policies consistent with its current needs.

"The one and one and half percent of US growth would be so tremendous and welcome to the world economy," he said.


Policy soon to facilitate entry of foreign banks

The RBI is all set to unveil banking sector reforms, which would allow foreign banks to enter Indian market in a big way and even contemplate taking over Indian banks, Rajan said.

The banking sector reform, in particular to those facilitating entry of foreign banks in India in a "big way" is part of the five pillars of reforms, including monetary policy framework, which the RBI is going to implement in the next few years, the RBI Governor told the audience.

"That is going to be a big big opening because - one could even contemplate taking over Indian banks, small Indian banks and so on," Rajan said, adding that the policy framework for the entry of foreign banks in India is likely to unveiled in the next few weeks.

"For foreign banks, if you adopt a wholly owned subsidiaries structure and we are coming up with details on that in the next couple of weeks, we will allow you near national treatment," he said, quickly adding that there would be two conditions.

"One reciprocity - your country should allow the same to our own banks - and second you come through one route either you have a branch or you have a subsidiary; don't do both. That is primarily to simplify our regulatory function, but also to make it clean. But once you have a fully owned subsidiary, we would allow you a lot of freedom," he said.

The new policy with regard to the foreign banks is part of his five pillars of reforms, he said, adding that this would start with the monitory policy.

"We got to get our monitory policy clear and understood to the broader public. Clearly the Reserve Bank has had monetary policy framework, we need to make it much more explicit. And also bring it up to modern standards of transparency and credibility," Rajan said.

Emphasising on banking reform, Rajan said the RBI has already announced free branching in India.

"We announced that we will give new bank licenses not just once, but we would contemplate opening it on tap -- people come in submit their application, we consider them and give licenses," he said, adding that the RBI is also talking about differentiated bank licenses.

Deepening of Indian markets, he said, is another area of policy reforms.

"We want deeper Indian markets - the corporate markets, the government debt markets and the money markets," he said, adding that this particular reform would be carried out only after the current economic turmoil is over.

Noting that the level of technology in India is tremendous, Rajan said financial inclusion is another sector of his reform.

"We can think about technology based solutions to intrusions- spreading payments across the country. Across the board we would use to spread financial inclusion technology," he said.

"Whether it be corporate distress or financial institution distress, we need to improve our mechanism to make it simpler, cleaner and less value reducing," he said.

Rajan acknowledged that inflation is clearly an issue for the economy. The ordinary monetary policy would be focused on containing inflation and not directed towards external sectors, he said.


Countries avoid IMF unless they are desperate

Days after saying that India will not seek funds from the International Monetary Fund in the next five years, Raghuram Rajan said that countries now only go to the IMF when they are desperate, which according to him is a dangerous situation.

"I have to say that there are a number of countries that would stay some distance from the IMF, because it would be politically very difficult for them to get anywhere very close unless they were desperate," Rajan.

"I think waiting till you are desperate is too late. And so countries are therefore going to try and avoid being in that position and I think that is damaging for the global economy. We have to find a better solution," said Rajan, who in his previous capacity was a top economic advisor to the IMF.

"The IMF is an incredible institution. I value that institution, having worked for it," he told the Washington audience.

Allaying fears of India not being able to meet its financial obligations, he said, "India's external debt to GDP is 22% and India has reserves of $280 billion which is 15% of GDP. In other words, the country can pay three-fourth of its debt from its forex reserves," he said.

"Out of total short-term external debt that we have to pay for is 10% of GDP. So, we have enough reserve to take care of that," he said speaking on the sidelines of the IMF meeting in Washington.

"We bought over $60 billion dollar gold last year. $60 billion accounts for three-fourth of our current account deficit. If the push comes to shove, we can pay the world in gold." Rajan added.

He said while India's economy has slowed, the country's forex reserves are large enough.


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