What India needs to do is to “fix the plumbing”, rather than make “grand announcements” in the economic sphere, Reserve Bank of India Raghuram Rajan told an international audience here over the weekend.
Questioned about the soaring expectations now that a new government led by Narendra Modi is in place, Rajan spoke of an environment and a willingness at this point to do what it takes.
“At this point, execution is important and I think the government is engaged in that, certainly on the financial sector side,” he said during a Q&A at the Institute of International Finance here, on the sidelines of the IMF-World Bank meetings.
IIF’s president and CEO Tim Adams, moderating the discussion, spoke of the “Modi mania” that was even sweeping Washington, so much so that economic forecasts for India had been updated.
But he questioned Rajan as to how India was going to meet the “very, very high expectations”, prompting the RBI chief to quip light-heartedly: “The first thing is to bring down the expectations.”
On a more serious note, he said India was “in the beginning phases of a recovery which I hope will strengthen over time”.
When Adams quizzed what he would tell sceptics of an Indian resurgence, Rajan admitted: “Talk is cheap. What we really have to do is deliver.” He, however, added: “ I think we are in the process of doing it. But watch the space and see the results. Hopefully that will convince you.”
Conceding that it has been an “uneven recovery” thus far, Rajan expressed confidence that the country would be “solidly” in the 5 per cent growth range this year and in the six per cent range by next year. And, beyond 2016, it would depend on what the country does over the next two years on several fronts, notably infrastructure.
“The good news for India is there are lots of low-hanging fruit and we’ve got to pluck them. Of course, the big question is why we didn’t do it before,” he said, adding: “I think there is an environment and a willingness at this point to do what it takes.”
“On the real side, it means getting the projects that are stalled going again,” Rajan said and made pointed references to fixing problems in the coal and gas sectors.
Referring to the issue of gas pricing and the appropriate price and production flexibility for coal, he expected the big decisions to be made in the next few months, thereby creating a better environment for investment in energy that India sorely needs.
part of the ongoing moves to restructure the banking sector and make it more vibrant, Rajan touched on plans to licence a number of small finance banks that would have the ability and mandate to lend to individuals and small enterprises.
He also referred to the deepening of financial markets, including bringing more investors including foreign investors into those markets. “We have some distress on the banking sector balance sheet. We need to make the banks come together to resolve those problems and move forward. The earlier they resolve it, the better,” he said.