Date : 17.7.2016

Raghuram Rajan: Should focus on structural reforms, not get fixated with growth numbers

RBI Governor Raghuram Rajan on India's growth, need for reforms, and the challenges ahead

Raghuram Rajan: Should focus on structural reforms, not get fixated with growth numbers

RBI Governor Raghuram Rajan on India's growth, need for reforms, and the challenges ahead.

RBI Governor Raghuram Rajan has been often criticised for being behind the curve in reducing interest rates, but he is categorical in his assertion that this argument has “no economic logic”.

In a brief interaction with select journalists in Mumbai, Rajan said he doesn’t “really pay attention to this kind of logic”.

When asked about India’s ability to achieve 8 per cent growth, Rajan said being “overly fixated” on a certain growth number should not be the priority, rather the focus should be on carrying out structural reforms that will enhance the pace of growth and ensure macro stability.

The RBI Governor, who will return to academia after his term ends in September, also talked about plans to explore usage of mobile companies’ kiosks as bank branches in rural areas.

Rajan said a mobile company has average 150,000 kiosks through which it sells mobile cards and if those kiosks can take in money and give out money, that could be a “big game changer”.

Edited excerpts from the interaction:

Q. In the current domestic situation that we have and the global economic challenges, what major challenge do you see for the Indian economy and RBI in particular?

Raghuram Rajan:  I think the challenges have been relatively same for quite sometime, which is, we are in the midst of a recovery. There is a lot of frustration with the pace of the recovery but we should remember that it’s in the face of two consecutive droughts and with a global economy which has been quite weak and of course with number of shocks coming from the global economy such as what we saw most recently with Brexit. So given that I think the performance of the Indian economy has been quite creditable and I think that the hope is that with the good monsoon, which we are seeing just now, that sentiment gets elevated especially in rural areas, rural consumption picks up more strongly, the agricultural sector gains strength, the rural industry gains strength and overall demand starts picking up more strongly. I think that will be, that certainly is our expectation and we will see how that plays out. The challenges are obviously strengthening this process by undertaking all the reforms that are needed, there is a lot of talk nowadays about GST being done in the Monsoon Session that would be a good thing. I think from our perspective at the RBI, the number of issues that we are working on and trying to accelerate the structural reforms process, so let’s see how much we can do.

Q. You have opened so many accounts under PMJDY (Pradhan Mantri Jan Dhan Yojana), maximum in rural areas. But now you see in rural areas for any bank branch or ATM people have to walk 4-5 km. Business Correspondents are not situated there in rural areas, they are shifted in small cities. What is the solution for rural areas?

Raghuram Rajan: We cannot put bank branches in every village. That would be too expensive, at least the full fledged brick and mortar branch. Now one possibility is a mobile branch and some banks are bringing in mobile branches, which travel from village to village and stay at a particular fixed time in a village. We are also exploring definition of a branch to see if mini branch, micro branch and mobile branch can fit into it. But I also think we need to work with new institution as well as technology. We have given the in-principle licence to Postal payment Bank. When it is licensed formally, that could bring a lot of Post Offices into the process and so you can put in money and take out money. With the mobile companies coming in, you can put in money, take out money from a mobile kiosk. So my hope is, take average mobile company has 150,000 kiosks through which it sells mobile cards.