Autonomy Of Institutions Key For Investor Sentiment, Says Raghuram Rajan


New Delhi: Former Reserve Bank of India governor, Raghuram Rajan, today said given the nation’s growth spurt, there should be no perception of interference in the country’s leading institutions as it could affect both foreign and domestic investment. “Not just foreign investors, but for the domestic investor to have confidence, there has to be a sense that the rule of the law will be upheld, that the tax authorities will behave appropriately… India is in a great spot for growth so we should be protecting institutions because we will need them,” Mr Rajan told NDTV’s Prannoy Roy.

“We can have faith in the institutions because they are protected by our democracy. If the governments lean too much on an institution, we have faith that the well-thinking people will come to the aid of those institutions,” he added.

Ahead of next year’s national elections, government “interference” in institutions has become one of the key opposition allegations. Congress chief Rahul Gandhi has said the party will not “tolerate what is happening in the CBI, Reserve Bank and every other institution in the country”.

Recently, amid an unprecedented feud in which the CBI chief and his deputy accused each other of corruption, the government had sent both officers on forced leave.

Last week, Mr Rajan’s successor at the bank, Urjit Patel, stepped down amid a never-before public tussle with the government, part of which was over the RBI reserves. The government was seen to be ramping up pressure on the bank to release the reserves to help boost the economy. Critics said it indicated the government’s priority in an election year.


India is in a great spot for growth so we should be protecting institutions because we will need them, Mr Rajan told NDTV.

“Such requests come all the time. I faced it too. When I was there, we paid the highest profit to the government,” said Mr Rajan, who had last week remarked that all Indians should be “concerned” about Urjit Patel’s resignation.

Mr Rajan, however, pointed out that a big dip in surplus reserves of the central bank could pull down India’s ratings with global ratings agencies.

India has been fighting for better ratings since the NDA came to power. It is expected to be an endorsement to Prime Minister Narendra Modi’s economic policies and help bring investment. But the three key ratings agencies — Moody’s, Standard & Poor’s and Fitch – have been slow to upgrade India, contending that the government needs to do more.

S Gurumurthy, one of the government-nominated members of the RBI Board, said while studies suggest that reserves could be 12 to 18.7 per cent of assets, the RBI has 27-28 per cent — which amounts to 3.6 lakh crore.

Mr Rajan also agreed with the other Congress allegation that lack of jobs and farmers’ distress were among the key problems India is facing. The three biggest problems for the economy are farmers’ distress, power sector and crisis in the banking system, Mr Rajan said. “‘Lack of jobs is a very serious issue. This reflects the problems that even at 7 per cent growth, it is not producing the jobs. (This year) 25 million people applying for 90,000 railway jobs – that seems to me a reflection of the fact that we have a real job problem,” he said.