Focus on reforms more crucial than chasing certain growth number, says Raghuram Rajan

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Edited excerpts:

Amid the current domestic and global economic situation, what major challenge do you see for the Indian economy and RBI in particular?

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 a weak global economy and of course with a number of global shocks like Brexit. So given that I think the performance of the economy has been quite creditable and I think that the hope is that with a good monsoon, which we are seeing now, that sentiment gets elevated especially in rural areas, rural consumption picks up more strongly and overall demand starts picking up strongly. I think that certainly is our expectation and we will see how that plays out. The challenges are 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.

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You have opened so many accounts under Pradhan Mantri Jan Dhan Yojana, mostly in rural areas. But even now people have to walk 4-5 kms for a branch or ATM. Business correspondents are not situated in rural areas, they are in small cities. What is the solution?

We cannot put bank branches in every village. That would be too expensive, at least for a 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. 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 in-principle licence to Postal Payment Bank. When it is licensed formally, that could bring a lot of Post Offices into the process. With the mobile companies coming in, you can put in money, take out money from a mobile kiosk. So my hope is, an average mobile company has 150,000 kiosks through which it sells mobile cards. If those 150,000 kiosks can take in money and give out money, that could be a big game changer. But one more thing which is happening, perhaps by the end of this month, is the universal payment interface (UPI) which I can make a payment from my bank account to your bank account just by knowing your alias. So if I am in a village, I can actually do a lot of payments without going to my bank account and taking out money. I just need to know your ‘Mohit@something.com’. The NPCI has your bank account details and will transfer the money to your bank account and you will get a message that so much money has been transferred. It’s a two-stage process. One, we have to make it easier to take out and put in money, the kiosks will help, the Post Offices will help. But also the need to take out money or put in money will reduce if I can do it directly into the bank account. If I can make payments electronically and I think UPI will help there. So my hope is these things will actually reduce the problem.

On the backdrop of a fragile economic situation and subdued domestic growth, a lot of suggestions came in that RBI was probably behind the curve in cutting interest rates. Your views on that.

This discussion keeps going on without any economic basis. You saw the CPI numbers just last week. 5.8 per cent is the CPI inflation, our policy rate is 6.5 per cent. So I am not sure where people say we are behind the curve, you have to tell me that somehow inflation is very low for us to be seen as behind the curve. So I don’t really pay attention to this kind of dialogue.

We were made to believe that the Monetary Policy Framework agreement which was signed last year that target was fixed. But now there are talks that the target will be reviewed and will be notified separately. Is the target of 4±2 per cent under review?

I think the government has to notify the target. That’s all that’s on the table.

No review?

The government has to reflect on it and notify. But that’s all that is on the table.

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Is there a need to ring fence bankers from investigative agencies especially given the kind of debt restructuring schemes you recently announced?

I think bankers have expressed some concern that they should not be held liable for actions that are taken in the full spirit of what is needed and I think everyone has respected that need that where they take actions based on appropriate due diligence, on a proper application of mind given the situation, they should have some freedom to take actions, because otherwise we will not get the kind of clean up track that the economy needs. Now that said, you can’t give a blanket sort of relief saying whatever actions you take no matter what their character, you should be absolved of any responsibility. I think there has to be some responsibility but the responsibility has to be for making the appropriate due diligence of taking measured decisions. Sometimes, you know, uncertainty creates the possibility that decision turns out wrong. To my mind, this new group that has been created to examine the process by which the decision was made, will try and give them comfort on that. Beyond that it’s not clear to me that anybody can give a blanket guarantee.

With good monsoon, many Union ministers are saying that 8% growth is achievable. Do you think that is achievable?

I have sort of refrained from saying this is going to be the growth number or that is going to be the growth number. Our last projection was 7.6 per cent and I think as the monsoon develops, as the global economy develops, clearly there will be changes in that. But I think we sometimes get overly fixated with a particular growth number. 7.6 (per cent), 8 (per cent), they are all within the same sort of range of numbers. What we should be focussed on is undertaking all the actions that we need to ensure that growth is strong and sustainable and that means macro stability, that means the kind of structural reforms we are doing to enhance the pace of growth. I think those are really what we should be focussed on rather than whether it is half a percentage point up or down.

On the balancing part, with inflation rising again, what would be your message to your successor?

Wait for monetary policy.

Your predecessor has written a book where he said that you would pay a price if you do not follow the government line. Do we expect similar book from you few years down the line?

I have no immediate plans to write a book on this subject. I’ll write on academic issues.