Mr Rajan promises a roadmap of further reforms soon. This will be a test of the grip he will have on problems holding the economy to ransom and how he can manoeuvre within the RBI’s mandate to tackle these.
The fickle equity and currency markets gave a thumbs up Thursday to the whirlwind of reforms announced by Raghuram Rajan, the Reserve Bank’s 23rd governor who took charge a day earlier.
Mr Rajan radiated the electrifying confidence that everyone from the markets to India Inc were looking for as he plunged on Day 1 to bring in considerable changes in tackling issues relating to banks, financial stability and inclusive growth. “Change is risky”, he said, “but as India develops, not changing is even riskier”.
Mr Rajan had obviously been doing his homework since his appointment was announced last month, while the media and analysts were obsessed with his photogenic looks and what he might do about inflation and growth. He surprised everyone on Day 1 with refreshingly simple but far-reaching proposals, like freeing banks and capital markets from unnecessary controls, using UID to usher in a revolution in retail credit, helping ordinary households access safe investment instruments and freeing them from costly intermediaries while being part of the financial mainstream. He even announced sops for exporters and importers.
Besides sending a clear signal that he was in command, Mr Rajan has changed the dynamics of discourse of a traditionally conservative RBI, and promises to craft an accelerated role for the central bank in inclusive growth and financial development. This was a refreshing change from the usual obsession with interest rates and GDP fractions. It’s not that inflation isn’t on his mind: he made it clear the value of a country’s currency is predicated on low and stable expectations of inflation.
Mr Rajan promises a roadmap of further reforms soon. This will be a real test of the grip he will have on problems holding the country’s economy to ransom and how he can manoeuvre within the RBI’s mandate to tackle these. Growth is equally dependent on removing supply side constraints, eliminating huge amounts of red tape, delayed decisions, corruption, etc. Even something as simple as eliminating the 40-50 forms that must be filled in before starting a business, and other steps to make it easier to do business, are not being tackled with seriousness.
Perhaps Mr Rajan knows better than most about the government’s scant respect for the reports of its own committees. He himself headed a committee on financial sector reforms in 2008, and his report was not given the importance it deserved. He said on Thursday that he intends to ensure his 2008 recommendations are carried out to facilitate Electronic Bill Factoring Exchanges — allowing MSME bills against big companies to be accepted electronically and auctioned so that MSMEs are paid promptly. One hopes this is not lost on the government, and it acts on the several vital reports it has thrown into limbo.
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