Reserve Bank of India governor Raghuram Rajan

Mumbai: Reserve Bank of India (RBI) governor Raghuram Rajan has said that while the eyes of the world have been on the Goods and Services Tax (GST) bill, a host of other significant reforms have been taking place in India, leading to macro-economic stability.

Stressing that there is no substitute for good policy, Rajan said that India has stuck to a path of fiscal consolidation and taken measures to cut the fiscal deficit that had widened dramatically following the post-financial crisis stimulus. Rajan was speaking at SaarcFinance, a symposium of central bank governors, on ‘Impact of Chinese slowdown on Saarc region and policy options’.

The governor’s statement on reforms was aimed at highlighting the Indian policy response to the slowdown. But it also comes across as a validation of the government’s economic agenda, which includes Startup India, Jan-Dhan Yojana as well as reforms in public sector banking.

“The government has embarked on ambitious structural reforms to revive growth, including significant efforts in the agricultural sector to boost productivity through irrigation, insurance, and access to markets, a strong push to deregulate business, especially for startups, important efforts to improve the governance of public sector banks and to resolve distress in power distribution companies, and an immense effort to expand financial services to the excluded through the provision of bank accounts and direct benefit transfers,” Rajan said, highlighting some of the reform measures undertaken.

He said the government and the RBI had contained inflation through a combination of better food management, a new inflation framework and calibrated monetary policies and, of course, the good luck of lower energy prices. The resulting demand management has caused “a lower current account deficit, down from 4.8% in 2012-13 to about 1% in 2015-16”. “We have also embarked on a clean-up of bad debts in the banking system so as to free bank balance sheets to support growth,” said Rajan.

“With the benefit of hindsight, I am sure we will see the cleaning up of the process of allocating public resources like spectrum and mines, as well as the process of appointing critical personnel such as public sector bank chiefs as one of the most effective reforms undertaken by the government. This is significantly increasing transparency in our system,” he said.

Rajan’s coming out in support of government’s reform measures appears to indicate that reports of differences between the central bank and the government have been overplayed. Such differences have been highlighted ever since maverick BJP MP Subramanian Swamy wrote to the finance minister seeking Rajan’s ouster. The RBI governor has not responded to any of Swamy’s actions.

On the global front, Rajan said that the sharp contraction in China’s imports over the past year has already led to spillovers through trade, confidence, tourism and remittance channels. “Saarc nations have not been able to avert its impact. More negative externalities could follow as Chinese economy adjusts to a more sustainable path,” said Rajan.

The meeting was attended by Arjuna Mahendran, governor of Central Bank of Sri Lanka, Fazle Kabir, the governor of Bangladesh Bank, and Dasho Penjor, governor of the Royal Monetary Authority of Bhutan.

