NEW DELHI : Reserve Bank of India Governor Raghuram Rajan today said one can’t take for granted stability in the government that will be formed after the upcoming General Elections, and warned that the new regime may not have the time to cut teeth in managing challenges in the economy that is threatened by ratings downgrade and jittery markets.
“I think we have to recognise that we have to face elections. A stable government post elections cannot be taken for granted. I am hopeful that there is a high likelihood, but it cannot be taken for granted,” the governor said at the Delhi Economics Conclave here.
“It implies that all parties have to work together to ensure that any government that emerges post election has the time to come to terms with the challenges of managing the Indian economy. Otherwise, markets and rating agencies may not be willing to cut the new government much slack,” Rajan said alluding to the volatile market conditions and the persistent threat of ratings cut by top ratings agencies.
India is due for General Elections in Apr-May. The just concluded round of Assembly elections in five states saw the Congress party–that leads the coalition at the Centre–get a thorough drubbing largely at the hands of the Bharatiya Janata Party.
“Post-election politics may become even more challenging for whoever assumes power. Similarly, any slowdown in putting large, stalled projects back on track before elections or any additional fiscal slippage will only amplify the large challenges that the government will have to face,” Rajan said.
Urges parties to pass key eco bills
Amid the political rumblings, the central bank governor underscored the need for the passage of pending financial bills in Parliament for reforms to gather force, and the overall economy to pick up.
“It will benefit the economy if Parliament passes key bills and if current authorities take action to improve growth and fiscal health including raising diesel prices to market level and eliminating other poorly targeted subsidies,” Rajan said.
Key financial bills, including insurance bill, Direct Taxes Code and Goods and Services Tax, are pending in Parliament.
He also said the growth in the Indian economy seems to be stabilising but it was too early to say that it has bottomed out. “I think growth is stabilising though it’s too early to call it bottomed at this point,” Rajan said. Latest data showed that the Indian economy grew 4.8% in Jul-Sep compared with a four-year low of 4.4% in the previous quarter.
He also said that India is much better prepared to deal with a possible tapering of the US quantitative easing because of the sharp reduction in current account deficit and the stronger foreign exchange reserves position. RBI mobilised $34 bln during Sep-Nov through special swap windows offered to banks for FCNR(B) funds and overseas capital raising.
On the next interest rate policy move, Rajan said the decision would be data dependent and the effort was to firmly control inflation. A host of data on inflation and industrial production is due for release this week ahead of RBI’s mid-quarter monetary policy review next week.
Concerned over rising bad loans, Raghuram Rajan also said the RBI could consider making future borrowings more expensive for willful defaulters. He said the central bank will come out with a discussion paper next week with regard to distressed borrowers and rising NPAs.