In an apparent counter to BJP MP Subramanian Swamy’s allegations against him on a host of issues including “raising of interest rates to force recession on domestic industries”, Reserve Bank Governor Raghuram Rajan on Thursday said India has contained inflation through a combination of better food management, a new inflation framework and calibrated monetary policies and lower energy prices. The RBI is now engaged in the process of cleaning up banks’ balance sheets to support growth, he said.
“The resulting demand management has resulted in a lower current account deficit, down from 4.8 per cent in 2012-13 to about 1 per cent in 2015-16. We have also embarked on a cleanup of bad debts in the banking system so as to free bank balance sheets to support growth,” he said at the SAARCFINANCE Governors’ Symposium. “There is no substitute for good policy. India has outlined and adhered to a path of fiscal consolidation to reduce the fiscal deficit that had widened dramatically following the post-financial crisis stimulus,” he said.
“In addition, the government has embarked on ambitious structural reforms to revive growth, including significant efforts in the agricultural sector to boost productivity through irrigation, insurance, and access to markets, a strong push to deregulate business, especially for start-ups, important efforts to improve the governance of public sector banks and to resolve distress in power distribution companies, and an immense effort to expand financial services to the excluded through the provision of bank accounts and of direct benefit transfers,” Rajan said.
Rajan’s comments came after his meetings with Prime Minister Narendra Modi and Finance Minister Raghuram Rajan on Wednesday. The RBI is scheduled to unveil its next monetary policy on June 7.
On Thursday, firing a fresh salvo at Rajan, Swamy levelled six allegations against him including of sending confidential and sensitive financial information around the world and asked the Prime Minister to sack him immediately. He alleged that Rajan raised interest rates to force recession on domestic industries, permitted Sharia compliance on financial organisations despite RBI Act not permitting so, continued to hold on to his US Green Card and sent confidential and sensitive financial information around the world.
According to Rajan, while the eyes of the world have been on the much anticipated Goods and Services Tax (GST) reform, a number of other significant reforms have taken place, including the recent passage of the new Bankruptcy bill, which is likely to speed the resolution of distress tremendously. “With the benefit of hindsight, I am sure we will see the cleaning up of the process of allocating public resources like spectrum and mines, as well as the process of appointing critical personnel such as public sector bank chiefs, as one of the most effective reforms undertaken by the government. This is significantly increasing transparency in our system,” Rajan said.