Money & Banking

‘We are not combatants, we are on the same side’

Our Bureau Mumbai | Updated on December 03, 2014 Published on December 02, 2014

Reserve Bank of India, Governor, Raghuram Rajan

We are very respectful of the Government’s views and try and accommodate them to the extent possible: Raghuram Rajan



Reserve Bank of India Governor Raghuram Rajan on Tuesday explained in detail on why there was no rate cut even as he held out hope that a cut could be a possibility early next year as inflation appears to be moderating. In an interaction with the media, Rajan elaborated on the monetary policy stance. Edited excerpts:

When can we expect a rate cut?

We are certainly seeing the disinflationary process, with global developments on the crude oil being positive for India. We want to get more certainty about the pace of the disinflationary process, get a little more sense of some developments on the fiscal front, etc. This is why the policy stance remains unchanged, we think that we are well set at this point but as the information comes in our sense is that if it (inflation trajectory) goes according to expectations then it will be towards monetary accommodation.

Also, as far as the new monetary policy framework goes, we are in discussion with the Government and we hope to finalise the framework shortly. The Government has indicated that it is comfortable in setting a four per cent inflation target (plus/minus two per cent) as suggested by a number of committees, including the Urjit Patel Committee, for inflation beyond 2016.

Will a new bankruptcy code help in recovering bad loans?

The judicial process is slow. There could be several entities to blame, including the fact that they do not have enough resources, there are not enough people in the tribunals, there may be multiple appeals all of which slow down the process. I do believe that in a situation where Debt Recovery Tribunals (DRTs) are collecting 13 per cent of the total outstanding in a year, we are not collecting enough.

The Government has said that it will set up more DRTs and Appellate Tribunals and give them more facilities. …I don’t think we need a more draconian law than the Sarfaesi Act. It is quite a tough act when implemented and we have to make sure that we pull out the impediments in its full implementation.

We do need an overall bankruptcy code. The Government is working on a code with eminent people on it. For now, improving the process of DRTs need to be focussed on.

Was there any pressure from the Finance Ministry to cut rates?

I think pressure is a very misused word. There is a healthy dialogue that goes on. The Finance Ministry realises that we are entrusted with the task of controlling inflation and creating sustainable growth. So we are not combatants, we are on the same side. Sometimes they have different views and we try and persuade each other of those views. We are very respectful of the Government’s views and we try and accommodate those views to the extent possible and then explain where we can’t and why we can’t.

What is the rationale for scrapping the 80:20 gold import scheme?

We have said in the past that some of these actions put to place to deal with the (currency) volatility would be withdrawn. On the issue of gold, there was a healthy debate and amongst the various opinions, one was that we are in a much better position — the current account deficit is much lower now, and there were some distortions which were creating an un-level playing field. Some parties were taking advantage of it while others were obeying the rules of the game. Another school of thought was that let us be a bit more cautious. However, a decision was taken to scrap it now.

Published on December 02, 2014
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