Watch: Here's what Raghuram Rajan expects from Budget 2018 Former RBI Governor Raghuram Rajan hopes FM Jaitley will stick to macro stability as he writes the Budget and not blow up fiscal deficit to an extent that India looks unreliable. ET Now caught up with Rajan on the sidelines of the World Economic Forum 2018 in Davos. Listen-in to this exclusive conversation.

I worry that we are not getting decisions taken by the bureaucracy, says, Former Governor,speaking to ET Now at Davos. Are we getting too centralised and is there enough capacity to manage what a 2.5 trillion economy needs?Edited excerpts:He was trying to say that India is open and favours global initiatives and also keeping the trade channels, investment channels open. He was trying to add another voice to the global leaders who are saying that the system we have is a good one and we should be more cooperative within it.Look India is a recovering economy. Recovering because we had a couple of shocks last year and recovering in face of rising oil prices. We have to work on the fact that we are still growing at 6.5-7%, which is creditable but we really need to build on this and to some extent we are going to have to build on it in the face of adversity as oil prices move up from the levels that were quite easy a few years ago.Well it is an across-the-globe phenomenon. Look at the Hong Kong market . We are not alone.Across the world, markets have been ramping up and to that extent we are part of that same phenomenon. It is a phenomenon where a lot of money is chasing relatively sort of limited assets and some of the concerns have to do with the narrow sort of areas where this money is going. But longer term, the issue is whether we can get our fundamentals to be really strong. There are people who look to India for growth leadership over the next 10-15 years and we need to prove them right and do what we need to do.What happens is that over time, as markets move up, people get more enthusiastic about it and are willing to put money in until they come down. So, we have to look beyond short-term movements to longer term trends. The Indian market has been growing more financialised over time. I do not know whether it is one act like demonetisation but it is a more general trend. In fact, the movement into financial assets was happening before the savings in financial assets was going up. This is an important trend. The movement into the market is probably a little more recently driven by returns and of course the worry there is return chasing is not always the appropriate thing to do.What is happening is money is tightening around the world. The Fed is on track to raise interest rates three or four times this year and QE across the world is slowing down. A lot of the money that was flowing into the markets via the central bank’s buying of government papers and taking that out of the equation is going to dry up. When that dries up, there has to be new sources of funding the liquidity that the markets need and if that is not available, do the markets then back up a little bit? Now, is there a signal event where this will happen? Maybe an inflation reading which suddenly turns out to be high and there is a sense that central banks are behind the curve, or a more rapid tightening that may be the signal event.Maybe it is when one of the big two, the ECB or the Bank of Japan signals a more rapid end to the QE. These are potential risks. It is hard to say which one will come true.What we need to do is ask why we need growth and we really need growth for the jobs that our young people need. Even with this level of growth, are we creating those jobs? If we are really to create those jobs we need massive investments and investment in job creating activities like infrastructure, construction etc.I would think that the biggest concern in the Indian economy today is that those massive construction projects we talked about just couple of years ago. I remember talking on an international forum about the Delhi-Mumbai Industrial corridor and so on. We are not seeing those. What has happened? We need implementation of those kinds of projects because they have multiple effects, jobs, they create possibilities for industry. That is one area where new industries could come up with the better logistics from a Delhi-Mumbai industrial corridor.There are bottlenecks: land acquisition has been difficult and unfortunately people do not seem to want to touch the issue of land acquisition and try and make it go faster for fear of people. This is a political issue. That is a speculation of what the concern is but somehow it has gone off the front page.Similarly, look at power. If we had 24x7 power throughout the country, it would be a very different story and unfortunately our attempt to remake the distribution companies at this point has still not shown results. UDAY is sort of much promised project but it is not clear if it is showing the results that we need to make the distribution companies buy power from people who are able to produce power but are not getting prices for them. Therefore we have excess capacity, we have power producers foundering because nobody is willing to take the power off their hands and we have distribution companies.It is the need for political focus on implementation and I worry that we are not getting decisions taken by the bureaucracy. Mr Jaitley has talked time and again about removing the impediments. For example, the fear that bureaucrats have being accused of corruption but why are we doing that? So, that is one set of issues -- decision making by the bureaucracy. But we also have to ask whether things are getting too centralised and if we are trying to run the economy by a very small set of people and whether there is enough sort of capacity to manage what a 2.5 trillion economy needs.Almost surely crude is a headwind for India. The global growth impact is a minor relative to the direct effect of crude on India. that said we are in a very good global environment and so it is quite possible for us to weather the effects of crude and to that extent I think we still I do not think that we should abandon all hope.We have to see the outcomes of the bankruptcy code. The first few outcomes will be very important. It is very important because once they set the pattern, you will see if in fact there is a fair treatment of the banks. In that process, they can recover some of the money and some of the promoters who have been recalcitrant, suffer some penalties. There will be much more of an incentive to negotiate outside of bankruptcy.We have a lot of mechanisms outside the SDR. For example, the S4A mechanisms we set up. Without the bankruptcy code to focus minds, people got a little lackadaisical about using them. If the bankers and the corporations can come together and negotiate in good faith with the threat of bankruptcy behind that if we do not arrive at an agreement, we will have to go there, will actually allow for a lot of sensible renegotiation. But we still need one more piece which is that bankers have to feel confident that what they do will in fact not be second and third guessing.After you have done all the possible negotiations and still not have come to the table, at some point, the promoters should be kept out of the negotiation process because they have had that chance. They have had their ability to pay back, to renegotiate in a way that is acceptable.The worry is if they participate in that last auction. I have heard businessmen talk about being warned by promoters to stay away from the auction because that would give the promoters an ability to bid at very low prices. That creates a sense of corruption, which this process would do well to stay away from.If at that last stage, you keep the promoters and their friends and cronies out, I do not think it is a terrible thing. Yes, maybe in the best of all worlds we would get a more sound auction if they participated but given the Indian environment, I think to being with, to keep them out and to let that process take place in a free fashion is much better. Give them their chances before but once you get there, leave them out.I think that once they realise this can happen and they will lose their companies if they go to this process, they will be much more forthcoming in the pre final auction negotiation. At that point they will be able to retain by paying a reasonable amount.We are but the bankers themselves might want to consider what that means. If, in fact, they are seen as foreign banks, will the country be as favourable to them going forward? Being a private bank is one thing, being a private foreign bank is another and many countries tend to be a little more concerned if the foreign banks account for more than a significant part of their financial sector and that is a legitimate worry.To some extent, private banks themselves have to think about what happens if they are seen as crossing that threshold when nobody actually sees that Indians owning the banks.I do not know but…Look, in the best of all worlds we would figure out the pristine pure GST, bring that in and it will work from day one. We do not function like that. I do not think anybody can function like that and some adjustment was needed. It is important we do this quickly and then we stabilise and people have a sense that this is what it is going to be going forward. There are a lot of people working overtime on this and to some extent this was inevitable. I am glad that we are doing it because long-term benefits will be quite substantial.I do not want to talk about expectations. I want to talk about the hope that we will stick to what we have acquired which is macro stability and that the Budget will not blow the fiscal deficit to such an extent that people think that India cannot be relied upon.One of the benefits we have had over the last few years is the India premium in, for example. foreign money coming in has gone off. People are demanding 6% extra to come into India because of exchange fears, fiscal fears and so on. That is a good thing. We have achieved that. We should retain that which means that if you want an enhanced growth not in terms of the fiscal stimulus but in terms of implementation of all these projects that have been announced, we need to take a look at all the stuff and make sure that they are actually working.I would like to see a budget focus much more on implementation and probably maintaining the fiscal course that the government has.I think we have to do what it takes whether it through divestment and so on to maintain the fiscal targets but I would think more that at this point our focus should be on removing supply bottlenecks than on creating much more additional demand. We already have sort of signs of inflation coming up. We have concerns about the fiscal deficit reflected in bond yields also moving out, so at this point I would say that is not where we should we put our focus. Whatever bottlenecks there are in terms of growth, let us fix those, implementation.I do not want to comment on specific tax these things because I have not thought about them too much but I think there is a need for ensuring that we do not have sort of very significant loopholes in the taxes and one of the concerns about the short-term about the capital gains has been that this could be the source of a loophole. I do not want to offer a particular solution. We need to re-exam the entire tax system. Abrupt frequent tax changes are also problematic. Whatever we do has to be flagged and done in a more systematic and sensible way so that we do not move back and forth.Look I do not want to comment on the specifics of monetary policy. The monetary policy committee gets a lot of advice from many people. I would say that thus far it is heartening that they have taken their task seriously and are going about it and are basically focussed on what they need to do. Let them do their job.As markets tighten over the world, we may have a little more pressure on money coming in. At one level, it is not that bad because to some extent that money coming in has to be managed and we have seen our reserves go up substantially as we manage that.So a little bit of pressure in the other direction may not be a bad thing. But I do think we have to be vigilant and this is why in this environment of rising oil prices, rising interest rates, macro stability is extremely important.I do think that we have to assure the public that their data are safe. All these reports about easy availability of data are worrying and we have to ensure the security. We cannot just say trust us, trust us, it’s all secure and then have these reports coming out. So clearly more works need to be done. That said, we should also be open to careful and monitored use of Aadhaar to deal with some of our problems. For example, the US has a social security number which allows all financial transactions to be tracked. Now there are people who can do it and it is not everybody who is allowed access to that kind of data. But somebody who is for example responsible for taxes has some insight into that process and that is not entirely a bad thing. So we have to balance privacy issues.: It cannot be mandatory. There has to be a structure by which we decide what it is allowed for, what it is not and it should be such that somebody cannot go fishing and find the goods on you.