“RAJAN
EFFECT”.
Raghuram
Rajan the man behind Indian Economy,
A farewell
note to the country. Must Read. Asst.Prof
Savio Fernandez
Today, I feel proud that we at the Reserve Bank have delivered on
all these proposals. A new inflation-focused framework is in place that has
helped halve inflation and allowed savers to earn positive real interest rates
on deposits after a long time. We have also been able to cut interest rates by
150 basis points after raising them initially.
This has reduced the nominal interest rate the government has to
pay even while lengthening maturities it can issue - the government has been
able to issue a 40 year bond for the first time. Finally, the currency stabilized
after our actions, and our foreign exchange reserves are at a record high, even
after we have fully provided for the outflow of foreign currency deposits we
secured in 2013. Today, we are the fastest growing large economy in the world,
having long exited the ranks of the Fragile Five.
We have done far more than was laid out in that initial statement,
including helping the government reform the process of appointing Public Sector
Bank management through the creation of the Bank Board Bureau (based on the
recommendation of the RBI-appointed Nayak Committee), creating a whole set of
new structures to allow banks to recover payments from failing projects, and
forcing timely bank recognition of their unacknowledged bad debts and
provisioning under the Asset Quality Review (AQR).
We have worked on an enabling framework for National Payments
Corporation of India to roll out the Universal Payment Interface, which will
soon revolutionize mobile to mobile payments in the country. Internally, the RBI has gone through a restructuring and streamlining, designed and
driven by our own senior staff. We are strengthening the specialization and
skills of our employees so that they are second to none in the world.
In everything we have done, we have been guided by the eminent
public citizens on our Board such as Padma Vibhushan Dr. Anil Kakodkar, former
Chairman of the Atomic Energy Commission and Padma Bhushan and Magsaysay award
winner Ela Bhatt of the Self Employed Women's Association. The integrity and
capability of our people, and the transparency of our actions, is unparalleled,
and I am proud to be a part of such a fine organization.
I am an academic and I have always made it clear that my ultimate
home is in the realm of ideas. The approaching end of my three year term, and
of my leave at the University of Chicago, was therefore a good time to reflect
on how much we had accomplished. While all of what we laid out on that first
day is done, two subsequent developments are yet to be completed. Inflation is
in the target zone, but the monetary policy committee that will set policy has
yet to be formed. Moreover, the bank clean up initiated under the Asset Quality
Review, having already brought more credibility to bank balance sheets, is
still ongoing. International developments also pose some risks in the short
term.
I took office in September 2013 as the 23rd Governor of theReserve Bank of India . At that time, the currency was plunging daily, inflation was
high, and growth was weak. India was then deemed one of the "Fragile
Five".
In my opening statement as Governor, I laid out an agenda for
action that I had discussed with you, including a new monetary framework that
focused on bringing inflation down, raising of Foreign Currency Non-Resident
(B) deposits to bolster our foreign exchange reserves, transparent licensing of
new universal and niche banks by committees of unimpeachable integrity,
creating new institutions such as the Bharat Bill Payment System and the Trade
Receivables Exchange, expanding payments to all via mobile phones, and
developing a large loan data base to better map and resolve the extent of
system-wide distress. By implementing these measures, I said we would
"build a bridge to the future, over the stormy waves produced by global
financial markets".
Today, I feel proud that we at the Reserve Bank have delivered on
all these proposals. A new inflation-focused framework is in place that has
helped halve inflation and allowed savers to earn positive real interest rates
on deposits after a long time. We have also been able to cut interest rates by
150 basis points after raising them initially.
This has reduced the nominal interest rate the government has to
pay even while lengthening maturities it can issue - the government has been
able to issue a 40 year bond for the first time. Finally, the currency
stabilized after our actions, and our foreign exchange reserves are at a record
high, even after we have fully provided for the outflow of foreign currency
deposits we secured in 2013. Today, we are the fastest growing large economy in
the world, having long exited the ranks of the Fragile Five.
We have done far more than was laid out in that initial statement,
including helping the government reform the process of appointing Public Sector
Bank management through the creation of the Bank Board Bureau (based on the
recommendation of the RBI-appointed Nayak Committee), creating a whole set of
new structures to allow banks to recover payments from failing projects, and
forcing timely bank recognition of their unacknowledged bad debts and
provisioning under the Asset Quality Review (AQR).
We have worked on an enabling framework for National Payments
Corporation of India to roll out the Universal Payment Interface, which will
soon revolutionize mobile to mobile payments in the country. Internally, the RBI has gone through a restructuring and streamlining, designed and
driven by our own senior staff. We are strengthening the specialization and
skills of our employees so that they are second to none in the world.
In everything we have done, we have been guided by the eminent
public citizens on our Board such as Padma Vibhushan Dr. Anil Kakodkar, former
Chairman of the Atomic Energy Commission and Padma Bhushan and Magsaysay award
winner Ela Bhatt of the Self Employed Women's Association. The integrity and capability
of our people, and the transparency of our actions, is unparalleled, and I am
proud to be a part of such a fine organization.
I am an academic and I have always made it clear that my ultimate
home is in the realm of ideas. The approaching end of my three year term, and
of my leave at the University of Chicago, was therefore a good time to reflect
on how much we had accomplished. While all of what we laid out on that first
day is done, two subsequent developments are yet to be completed. Inflation is in
the target zone, but the monetary policy committee that will set policy has yet
to be formed. Moreover, the bank clean up initiated under the Asset Quality
Review, having already brought more credibility to bank balance sheets, is
still ongoing. International developments also pose some risks in the short
term.
While I was open to seeing these developments through, on due
reflection, and after consultation with the government, I want to share with
you that I will be returning to academia when my term as Governor ends on
September 4, 2016. I will, of course, always be available to serve my country
when needed.
Colleagues, we have worked with the government over the last three
years to create a platform of macroeconomic and institutional stability. I am
sure the work we have done will enable us to ride out imminent sources of
market volatility like the threat of Brexit. We have made adequate preparations
for the repayment of Foreign Currency Non-Resident (B) deposits and their
outflow, managed properly, should largely be a non-event. Morale at the Bank is
high because of your accomplishments.
I am sure the reforms the government is undertaking, together with
what will be done by you and other regulators, will build on this platform and
reflect in greater job growth and prosperity for our people in the years to
come. I am confident my successor will take us to new heights with your help. I
will still be working with you for the next couple of months, but let me thank
all of you in the RBI family in advance for your dedicated work and unflinching
support. It has been a fantastic journey together!
With gratitude
Yours sincerely
Raghuram G. Rajan.
Yours sincerely
Raghuram G. Rajan.
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