Shouldn't Over-Invest in Infrastructure: Raghuram Rajan to Prannoy Roy

Reserve Bank of India Governor Raghuram Rajan interacted with students at a session organised by NDTV. Speaking to Dr Prannoy Roy, the RBI chief said that though the Indian economy is not in a phase of strong growth as yet, there is high possibility that the country will see strong growth over next two years.

Here are the key things that Dr Rajan said:

On Markets and Economy

• Do not see a bubble in Indian markets
• But faster rise in interest rates in the US could be a risk to global asset prices
• Expectations are that the interest rates in the US will rise slowly given the global growth remains capped at fairly low levels
• We are not in a phase of strong growth as yet
• But high possibility that India grows reasonably strong over next few years
• We will see pick-up in growth
• Growth can't be instantaneous
• Shouldn't over-invest in the infrastructure sector
• Lower oil prices helping inflation come down
• Have to try to reduce the stress in the financial system
• India has benefited from the external environment

On Risks to Rupee

• RBI is not targeting any value for rupee but wants to curb volatility
• RBI is not trying to protect a particular level of rupee
• Emerging markets are susceptible to volatility as the world exits the very accommodative monetary policy, but India has made major improvements since we experienced last round of volatility in July-August last year
• We have more reserves; we have much smaller current account deficit
• Inflation is lower.
• Oil price fall has been helpful in this regard
• Indian currency has more respectability now because inflation associated with it is significantly lower
• Hopefully, we are on a strong growth path
• We look different today from other emerging markets
• I am hopeful that after an initial bout of volatility, we will come through and people will put their money back into India
• I hope that the November trade deficit was one-off and expect gold imports to fall

On Interest Rates

• Don't want to flip-flop on interest rates
• Don't think the RBI has missed the bus to lower rates
• The concerns are how long oil price will stay low
• Once the disinflationary process is well underway, we will have the ability to be more accommodative in a sustainable way
• RBI is not against growth, but looking for sustainable growth
• Interest cut in India will show an impact 3 quarters later
• In India, supply has been more constrained while demand has been strong
• Have to fully solve the supply-side problem to contain inflation
• The best way we can aid growth is by keeping inflation low
• RBI is not against growth but it is for sustainable growth
• But our horizon is sometimes longer than those who want us to cut rates
• We should avoid blaming RBI for standing in the way of growth; there are many other factors that are needed to boost growth

Two Things He Wants In Budget

• The government's emphasis on fiscal consolidation is a strong signal to the investors that will help both in terms of inflation and interest rates
• GST will also be a big step forward

On 'Make in India' Push

• Need to create the conditions for 'Make in India'
• Let the entrepreneur decide where he wants to go - whether to manufacture for India or for exports
• There is a lot the government needs to do
• I am not an export pessimist, but I am against industrial policies that promote undervalued currencies and export champions
• The world has changed a lot

On Crony Capitalism

• There are concerns about crony capitalism
• Crony capitalism is a phase that every country has to go through
• We have plenty of good business people in India
• What is worrying is a few people muddying the pool and making it difficult for everybody else 
• Debt is a sacred contract; if you borrow you have to repay

On Public Sector Banks

• There were situations of non-transparent lending
• Need to figure out the way to clean up governance in PSU banks
• Expense structure in public sector banks is sometimes higher than private banks
• There is a need to figure out how to improve debt recovery for public sector banks
• Singapore has state-linked banks
• Need to improve the quality of boards in banks
• Need more professionals in public sector banks

On E-Commerce

• There are tremendous possibilities in e-commerce
• Uber was using a way of bypassing RBI regulations
• No matter who you are, you can't violate regulations
• New technology needs some adjustments in terms of regulations

On Cashless Currency

• Down the line, we will be moving towards a cashless society
• Believe that virtual currencies will be much safer and get better in future
• There are security issues in Bitcoin