Ostrich Attitude Doesn’t Work With Handling Bad Loans, Says Raghuram Rajan
Days after the book launch, Raghuram Rajan speaks to BloombergQuint’s Ira Dugal.
Raghuram Rajan Talks To BloombergQuint
Days after the launch of his book, Raghuram Rajan speaks to BloombergQuint’s Ira Dugal.
Rajan On India's Growth Slowdown
Demonetisation is a part of the reason why India’s growth has slowed down to 5.7 percent in the first quarter. However, it is not the only reason, said Rajan.
The first number worrying the former RBI governor is India’s private investment.
Private investment is not picking up, so where is the exhuberance that is sometimes exhibited in a stock market or by statements in by the private market executives. Why are they not putting assets in the ground?Raghuram Rajan, Former RBI Governor
Secondly, the country’s stalled projects are also a reason for worry. “Is that a wrong number that doesn't mean anything?,” Rajan said. If the projects are dead and irrecoverable, they should be written off. In that case they would not be a reason for worry. But if that number does mean something, “then why aren't we getting any more movement in putting them back on track”, he said.
On Formalisation Of The Indian Economy
While there are benefits of formalisation, the move from formal to informal takes tremendous preparation, said Rajan. An overnight move can cause a significant amount of disruption, affecting the country’s growth in the medium term, he said.
Occasionally a ‘jhatka’ gives a loud signal, but you have to ask yourself, ‘at what cost?’.Raghuram Rajan, Former RBI Governor
With formalisation, he said, comes the question of the degree of regulation and that excess regulation has also been a problem in the past. “Some of these businesses may not even be viable if they have to pay tax.”
On India's Bad Loans
Speaking about how the central bank highlighted the bad loans problem under his tenure, Rajan said, “People say RBI created the bad loans. RBI did not create the bad loans. The RBI just told the banks that you have to account for this properly so that your owner, the government, can understand the size of the problem.”
The ostrich way of putting the head in the sand and hoping the problem goes away wasn’t going to work any longer.Raghuram Rajan, Former RBI Governor
Raghuram Rajan, former governor of the Reserve Bank of India, launched his new book I Do What I Do on September 5, where he talks about his time at the helm of India’s central bank.
His three-year term from September 2013 to 2016 ended with some controversy, as the outspoken governor decided to go back to academia. His tenure was marked by both bouquets and brickbats but saw severe criticism from some political quarters towards the end, including personal attacks.
In his book, Rajan writes about the RBI governor's right to say 'no' to decisions he does not agree with. While not directly referring to the note ban, Rajan at the launch of his book, said the RBI governor has the option of stepping down if a decision is forced on him. He also says that he warned the government that short-term costs of demonetisation would outweigh its long-term benefits.