Transcript of RBI Governor Dr. Raghuram Rajan's Q & A session during the Press Conference

Aniruddha, ET Now: Governor, Aniruddha from ET Now. There is a lot of interest in finding out what your stance is going to be. Is it going to be anti-inflation, is it going to be pro-growth? I know it is still early days to understand that, but if you could just kind of give us a hint as to where would be your main priority, would it be controlling the rupee’s value, would it be growth or would it be inflation?

Governor: As I said we will make everything clear with the monetary policy statement on the twentieth. I don’t want to prejudge that statement.

Ritesh, Zee Business: Dr. Rajan, this is Ritesh here from Zee Business. Sir, at this point in time we are actually going through a very tough time in terms of growth, and market and public at large is actually looking at the economy in a very dull mode and lot of pessimism is there in the market. What would be your message to market and people at large who are looking with pessimism? You sound very optimistic in your speech.

Governor: Well, I think we have proposed a bunch of reforms which I have every intention, I think, to enhance growth. And I think you know there are so many low hanging fruit in the economy that if we only pluck them we can accelerate growth substantially. I think there are some positive developments in the economy going forward which will also help, for example the good monsoon. But I think that we don’t need to sit still and wait for developments to run their course. We can also take part in enhancing the growth process. I hope what we have announced today will give some measure of things that we can do and we will obviously explore more ways that we can enhance growth. But my sense is that you know we certainly don’t need false optimism, but I think there is good reason to believe that the medium run future of the country is strong and we have, as I said initially, to create the bridge towards that medium-run. Which means let us put in place the kind of reform which will both signal to our own people but also to the outside world that we have confidence in this economy, that all the sort of doom and gloom is probably overdone and that we can in a sense go back to stronger growth but also financial stability, financial market stability that we deserve.

Prashant, NDTV: Sir, Prashant Nair from NDTV. Congratulations first; you got an ambitious list in front of you. I just want start by asking that the RBI monetary policy has been scheduled to after the Fed meeting; that’s been a rescheduling in that sense. How important is it going to be what the Fed does in terms of its decision to reduce bond purchases etc.?

Governor: Well, I think certainly the Fed announcements and their effects on markets that we have seen are important, but they are not the only international development that will take place between now and then. So we will monitor all developments including domestic developments that we need to take into account in announcing the monetary policy statement.

Prashant: Sir, you said promoters do not have a divine right to stay in charge. Are you going to be critical of the leeway that the RBI over the last couple of years has given promoters and corporates in restructuring debt etc.? I mean, without much reason except that times were pretty tough? Are you going to be taking a critical view of that?

Governor: We have to be careful about not injecting more uncertainty into the economy than it can handle. So we have to take this in a measured way. The more important point is that equity has to come from the promoter; equity cannot come from the banks. So there has to be risk absorbing capital. Over time we have to make sure more of equity comes from the promoter rather than from the banking system itself.

Prashant: Sir, just one last point. Just to go on to what Aniruddha asked you earlier about growth and inflation. I know it is not as black and white as it seems. I am sure you want growth. But how would you describe what the RBI has done recently, and to put it in a different way, are you going to continue on that path or should we expect something drastically different.

Governor: You are asking me the same question and I will give you the same answer. Wait for the monetary policy statement. I am not going to comment on past policies but let us look at the monetary policy statement when it comes out and you will get all the answers to all your questions.

Govardhan, Economic Times: Sir, Govardhan from Economic Times. Is this your version of big bang like the Bank of Japan or was it that on day one you wanted to convey some message? The second is that you said that changes involve risk. What are the risks? You have seen risk all along, so what is the risk that you see in taking your programme ahead?

Governor: Well, first this is not my version of big bang. This is our collective effort. You can see that some of what I have announced are developments that have been put forward by the RBI that has been in the works. But in a way, one of the points I want to underscore is that there has been a lot of developments over time, both from the Government’s side as well as the RBI’s side over the last year or more. And some of those developments get lost because they come sequentially and then people say these are small changes, etc. But when you put them together they seem significantly more and to some extent – of course today I think we are making some very big changes. But, I think when you put all of this together this is a big initial package. We intend to do more, but it is a big initial package or a down payment. And so I would like both domestic audiences as well as international audiences to see that a lot is being done, not so much in any kind of panic or any kind of excessive concern about a situation. And I would not use the words ‘crisis’ and ‘India’ in the same breath other than in this sentence. We are very far from anything that has happened to other countries over time. We are a very stable, a very solid economy. There is no reason to be down. Yes, we are going through challenging times. Which country is not? But we will overcome those challenges. So, one of the points here was to bring together a number of actions, so that you could see that when aggregated together there is a substantial amount. And I think if you go back to see what the RBI has done, what the Government has done over the last year and half, you will find that a substantial amount of work that has been done. And pointing to a few stray policies and taking them out of context it looks like we don’t know what we are doing. But absolutely there is a plan and this plan is being followed and we hope that what we intend to do over the next few months is really clear.

Govardhan: Sir, you spoke about the risks and you also mentioned about subsidiary structure for foreign banks and the debt restructuring. Some of the things have been in the works since 2005. The problem is when it comes to implementing any of this. So, how is that you are going to handle this implementation and what are the risks associated with implementing this?

Governor: Well, I announced only the policies we will implement in the next few months. So we are not talking years, we are not talking many months. Some of these will be done in the next week or so; some will be next few weeks. These are all policies that have full agreement within the RBI, the issue is really to dot the i’s and cross the t’s. There is no question that it will be implemented. In terms of risks, the risk with any change is the potential that we haven’t seen the full consequences of that change. That is true of any change that is proposed. I think we deliberate very carefully about all the changes that we have been proposing. And therefore this is a consequence of deliberation. I mean you don’t see the policies that we ruled out because we were not comfortable with them. What is presented today is what there is consensus on within the RBI and so in that sense it makes me comfortable that we are not taking undue risk.

Parnika, DNA: Dr. Rajan, Parnika from DNA. Sir, recently some international rating agencies have reiterated their chances of a possible sovereign rating downgrade. And also another threat is that of quantitative easing that could start as early as this month. These two things, how do you think that could make things worse for the banking system, the financial markets and the rupee in India?

Governor: As far as I understand, S&P merely reiterated what has been its longstanding claim about there being a one-third possibility of a rating downgrade, and one-third over a long period, something like a year or so - I don’t know the precise phrasing. That is something to do with where we are. It is not something new, it is a statement made by S&P. Given the kind of rating they have given us, the associated probability is also relatively fixed. So, I would not read too much into that statement. Obviously, given higher oil prices and so on, we have to be somewhat careful about Government finances. But I wouldn’t read more into the S&P statement than that.

On the second question which was about tapering. Well obviously we are paying attention to that. We have seen that financial markets do get very volatile when those issues come up and we will take actions as appropriate to deal with the consequences if and when it is announced.