:00:00. > :00:11.Now, on BBC News, it's time for Talking Business, with Linda Yueh.
:00:12. > :00:20.I has had to take some deep breaths this summer. Investors were leaving,
:00:21. > :00:30.the currency hit an all`time low. As one man brought India back from the
:00:31. > :00:34.brink? He first gives `` he tells us quite India will now seek aid and
:00:35. > :00:35.what he thinks about being called a rock star. Welcome to Talking
:00:36. > :01:08.Business. Governor Raghuram Rajan, thank you
:01:09. > :01:15.for speaking to the BBC. It is a pleasure to be here. I wanted to
:01:16. > :01:19.ask, what does it feel like to be called a rock star central banker? I
:01:20. > :01:24.try not to think about that. Inevitably, people will come to
:01:25. > :01:32.terms with the fact central bankers are boring, conservative people.
:01:33. > :01:37.While it lasts, let them talk about it.
:01:38. > :01:44.I bet your wife really likes it. I don't know whether she likes it or
:01:45. > :01:54.if she is worried. I want to ask you about the stop
:01:55. > :01:59.markets being up, the rupee has gained lost ground, how long will
:02:00. > :02:04.this rally last? Seriously, what we have been trying to do, the
:02:05. > :02:10.government and Reserve bank, is try to change the perception about
:02:11. > :02:16.India. We have been helped by favourable external circumstances.
:02:17. > :02:22.The fact the federal bank decided not to act, Syria did not plunge
:02:23. > :02:29.into an all`out problem with the bombardment by the US. Of course,
:02:30. > :02:34.unfortunately, the fact that the US with its fiscal contretemps, has
:02:35. > :02:41.perhaps postponed action even further. But, we have also done a
:02:42. > :02:46.fair amount internally to try to change the perception India is a
:02:47. > :02:54.country with severe macro economic problems. I think there was a point
:02:55. > :03:04.at which people thought even the unimaginable, that India would find
:03:05. > :03:13.it difficult to finance itself. People weren't willing to go beyond
:03:14. > :03:18.the headlines. The headlines, the newspapers tend to pick out every
:03:19. > :03:23.bad thing that happens and focus on it. That makes things even worse.
:03:24. > :03:31.Our attempt was to change the dialogue. We do have macro economic
:03:32. > :03:36.changes, high inflation, a fiscal deficit which is much too large. We
:03:37. > :03:44.have been bringing it down but we need to do more. We had an external
:03:45. > :03:49.deficit, again, much too large. We have focused on bringing down that
:03:50. > :03:56.borrowing. I am happy to report that while the governments and the
:03:57. > :04:03.reserve Banks say we will be borrowing 3.7% of GDP this year,
:04:04. > :04:08.down from five last year, but it could be better than that, much
:04:09. > :04:12.lower. We are happy with that change. We can certainly finance it
:04:13. > :04:17.many times over with the money we have. We need to create a better
:04:18. > :04:25.mood for investors. At the reserve bank, the best way is to give people
:04:26. > :04:31.a sense we will control inflation. 9%, much lower when you look at
:04:32. > :04:37.wholesale vices. But we do need to bring down the consumer price
:04:38. > :04:41.inflation. The second thing is to give people a sense we have focused
:04:42. > :04:49.on creating structural reforms for growth, and changing the financial
:04:50. > :04:58.sector in India to make it stronger, more resilient. What is your time
:04:59. > :05:08.frame? Your aspirations and reform goals? Yes, five pillars, monetary
:05:09. > :05:16.framework, fix the banking structure to make it competitive. Deep in the
:05:17. > :05:19.markets. Reach every Indian, whether they are in remote villages of
:05:20. > :05:24.running a small or medium enterprise, bringing more people
:05:25. > :05:30.into the system. Finally, the fifth pillar is to have better systems to
:05:31. > :05:38.deal with distress, corporate distress, bank distress. Five years
:05:39. > :05:44.is a reasonable horizon. A time of which many reforms can be
:05:45. > :05:54.accomplished. The value of the rupee which affects
:05:55. > :05:59.inflation. Different central bankers have begun to look at the currency,
:06:00. > :06:04.the Bank of England, they said that looks about right. Is there a level
:06:05. > :06:14.of the rupee you are comfortable with? I try not to say, this is the
:06:15. > :06:21.appropriate value of the rupee. I do know when it has gone too far. 68,
:06:22. > :06:27.which it reached at the end of August was, to my mind, a little too
:06:28. > :06:34.far, relative to our fundamentals. 50 is probably too strong
:06:35. > :06:40.relatively. There is a fair gap, fair range in between where I am
:06:41. > :06:46.comfortable. Indian exports are competitive. Where we will generate
:06:47. > :06:52.enough to pay for our large imports. But, the real issue is not
:06:53. > :07:00.just the current level, but to give investors domestic and foreign a
:07:01. > :07:07.sense that the value of the rupee will be retained and the key is to
:07:08. > :07:10.bring down inflation. People will not need to think we need a steady
:07:11. > :07:18.depreciation to maintain competitiveness.
:07:19. > :07:24.You are doing a lot, but there is a limit to what central bankers can
:07:25. > :07:34.do. I am going to make you identify your limits. Would you be able to
:07:35. > :07:41.prevent a currency financial crisis? Of course, that we can. What we
:07:42. > :07:47.can't do, one of the things that developing country central bankers
:07:48. > :07:53.have, that developed central bankers don't have, the ability to use
:07:54. > :07:58.structural reforms. If I can bring credit to a village which doesn't
:07:59. > :08:04.have credit, a new set of businesses get set up. I don't have to change
:08:05. > :08:12.interest rates or do anything else, just let them have access to credit.
:08:13. > :08:19.So, the structural reforms we do can enhance growth. Considerably. We
:08:20. > :08:26.don't have to deploy unconventional monetary policies. However, there
:08:27. > :08:31.are limits as you point out to that. Finance is an enabling device.
:08:32. > :08:37.You need real entrepreneurship will stop real businesses to be set up.
:08:38. > :08:43.Real roads to be built. They have greater effect. That requires
:08:44. > :08:51.governance implementation. Those are things the government has to do. In
:08:52. > :08:57.India, one thing people focus on is just central government. We have a
:08:58. > :09:01.large number of states. Like Europe. States which have populations bigger
:09:02. > :09:10.than most populations, countries in Europe. But the point is each of
:09:11. > :09:15.these states has an independent government. Different states have
:09:16. > :09:21.been moving, enhancing the investment climate in their state.
:09:22. > :09:30.So, don't think of India as one piece. Try it out and you see there
:09:31. > :09:35.is a piece fits you. This is what increasingly investors are seeing.
:09:36. > :09:42.Governments which are friendly towards their aspirations. If you
:09:43. > :09:50.think of India with states looking to have industries that can use that
:09:51. > :09:57.power. Some states have fixed land acquisition powers. For every
:09:58. > :10:03.problem there is a state which can solve it. So it is worth looking
:10:04. > :10:13.into India more finely. In your mind, I was like your take
:10:14. > :10:18.on what the biggest impediments to something which is fairly
:10:19. > :10:23.fundamental, industrialisation, for India. Access to finance is part of
:10:24. > :10:30.it. For many, they would say the other big side of that would be
:10:31. > :10:38.education, human capital. There is still substantial poverty in the
:10:39. > :10:43.country. What is holding India back? I presume you mean the manufacturing
:10:44. > :10:49.sector which is smaller than emerging markets. Our service sector
:10:50. > :10:59.is much larger. If you look at the combination, the number of people in
:11:00. > :11:07.agriculture, closely associated to people in rural areas. At our level
:11:08. > :11:15.of GDP... China had more people in manufacturing, and services. It does
:11:16. > :11:22.lead to the question why do we have so few workers in manufacturing. I
:11:23. > :11:27.would say, there are four reasons. Infrastructure, we haven't built it
:11:28. > :11:32.in the same way as China. There are reasons, including the fact land
:11:33. > :11:37.acquisition is tougher in a democracy where we have to pay
:11:38. > :11:40.attention to people whose land is being acquired. I am not saying
:11:41. > :11:49.China is not, but it is easier in some ways to do it there. Secondly,
:11:50. > :11:54.our education which you point out. People think India is over endowed
:11:55. > :12:00.with educated people. Perhaps in some areas. Despite the large number
:12:01. > :12:03.of engineers, not all of them are of top quality. We need an improvement
:12:04. > :12:09.in quality and more people in certain areas, construction
:12:10. > :12:14.engineers, plumbers, electricians. We need to improve the quality of
:12:15. > :12:20.human capital and train it more for jobs available. We are similar to
:12:21. > :12:25.many other countries looking for a revolution in human capital. We have
:12:26. > :12:33.some programmes underway but need more. The third is business
:12:34. > :12:39.regulation. Yes, these stories about Indian bureaucracy, there is a
:12:40. > :12:45.reason for those stories. We are trying to improve on, edition
:12:46. > :12:53.between states, bringing down the level of over regulation in some
:12:54. > :12:57.areas. We have to find a way in some others, environmental regulation.
:12:58. > :13:03.How do we make it effective? Not stop industry, but at the same time
:13:04. > :13:16.have the effect of protecting the environment. Those are three
:13:17. > :13:21.important things, and finance. If we work on those four things. Take
:13:22. > :13:24.infrastructure, the image of infrastructure is creaky airports,
:13:25. > :13:33.but you will see a world`class airport in Delhi. And in Bombay,
:13:34. > :13:38.again. State`of`the`art. Probably in the next four years if you travel
:13:39. > :13:43.between Bombay and daily, you will be travelling through the industrial
:13:44. > :13:52.corridor. We hope to have high`speed roadways, rail links. Nine new
:13:53. > :13:58.cities. A tremendous high quality infrastructure built up with the
:13:59. > :14:03.scope for new firms opening up with lighter regulation.
:14:04. > :14:11.These are all things which sound extremely reform oriented to get the
:14:12. > :14:15.growth rate up again, but what would you say to those foreign investors
:14:16. > :14:20.who say, I think you are on the right track and you inspire
:14:21. > :14:24.confidence, but what you are describing is not something which
:14:25. > :14:28.you can make happen, this is going to have to come from the
:14:29. > :14:35.government, it will have to come from other parts of it. Should you
:14:36. > :14:42.be Prime Minister? The macro I think we have a very, very good Prime
:14:43. > :14:52.Minister. `` I think we have a very, very good Prime Minister. People
:14:53. > :14:57.ignore the good in times like this, and there are good people across
:14:58. > :15:08.government. The rock star will wear off here, but there are rock stars
:15:09. > :15:10.everywhere else. Focusing on my current rock star, one of the
:15:11. > :15:14.concerns with the raising of interest rates that you have done
:15:15. > :15:19.while you have been in office is that you are trying to control
:15:20. > :15:24.inflation but it is hurting growth, and people around Mumbai are very
:15:25. > :15:28.concerned about the prices of goods, and I can see why it is that
:15:29. > :15:32.you have done that, but looking ahead, do you think this is the
:15:33. > :15:41.right trade`off, given how growth is so slow and generating the worries
:15:42. > :15:48.of a crisis? I do not have the worry of a crisis. Secondly, these are the
:15:49. > :15:54.consequences of some of the challenges we're, particularly when
:15:55. > :16:00.you have `` the challenges were facing, particularly when you have
:16:01. > :16:04.this kind of growth. We have the slowing growth now because of some
:16:05. > :16:12.of the constraints to setting up factories that have emanated over
:16:13. > :16:18.the last few years. That has caused supplied side constraints. We are
:16:19. > :16:26.not producing as much as we should even when demand is high. This is
:16:27. > :16:31.most felt in the culture. There are products that people want, such as
:16:32. > :16:34.milk and poultry and so on, but we are still seeing relatively high
:16:35. > :16:40.prices because it is not taking place with ink beast demand. It is a
:16:41. > :16:44.disease of riches. As people are getting richer, they are changing
:16:45. > :16:49.their patterns, and we need to produce more of the stuff that they
:16:50. > :16:55.want, but it is taking time to do that. That is one constraint. We
:16:56. > :17:04.have to get inflation back under control. Increased supply is one
:17:05. > :17:10.aspect. We need to have investment. That is our challenge, how'd you get
:17:11. > :17:18.investment even while consumption demand is slowing? You have to
:17:19. > :17:23.muddle through, and a sense. `` in a sense, in these environments where
:17:24. > :17:28.there is slowing inflation. We do not have a clear and easy answer.
:17:29. > :17:32.You cannot compress too much because you will not get the investment that
:17:33. > :17:36.you want to fix the supply`side problems, but if you have growth
:17:37. > :17:41.that is too high, then you have the high inflation, which will again
:17:42. > :17:49.come back to IQ. It is muddling through. `` to bite you. You have
:17:50. > :17:53.said there is no chance of a crisis. Last year we talked about some of
:17:54. > :17:57.the traits that India had that were reminiscent about `` with what
:17:58. > :18:02.happened in 1991. The deficit is still fairly large. The fiscal
:18:03. > :18:09.deficit is coming down but it is still fairly large. Money is leaving
:18:10. > :18:13.the country. That has led to the fall of the rupee. Why are things
:18:14. > :18:24.different now than they were in 1991? We are growing but we are
:18:25. > :18:29.still growing at 5%. Secondly, our external debt, people did not
:18:30. > :18:34.realise that it is about 22% of the GDP. That is small. There are very
:18:35. > :18:42.few countries that have gone into a crisis with that kind of debt. Our
:18:43. > :18:46.reserves are 15% of the GDP. We can pay back all of the short term debt
:18:47. > :18:57.tomorrow if we wanted. In that sense, we have plenty of reserves.
:18:58. > :19:03.This is why, when people ask me if I will go to the IMF, for what? We are
:19:04. > :19:09.lending money to the IMF. What we get from them would be a fraction of
:19:10. > :19:15.the debt. But would it help the IMF to have a structural programme? We
:19:16. > :19:22.are doing the structural programme ourselves. But for the IMF give you
:19:23. > :19:25.an external excuse to it, in other words, when it comes to the
:19:26. > :19:28.politics, having an external force come in and say that these are the
:19:29. > :19:39.things you need to do to get industrialization. It is not going
:19:40. > :19:43.to happen. I love the IMF, I worked there for a while and I think it is
:19:44. > :19:46.a great organisation. They give a lot of good advice and I am happy
:19:47. > :19:52.for all of the advice they would give. But going to an IMF programme
:19:53. > :19:57.is to some extent a sacrifice. If you can do it for yourself, if you
:19:58. > :20:01.can take the medicine yourself, and there are plenty of economists that
:20:02. > :20:06.can give us the advice that we need, but we will be happy if the IMF
:20:07. > :20:13.gives us additional advice. But we have to follow our own path, and our
:20:14. > :20:17.sense is that, yes, this will be affected somewhat by politics, but
:20:18. > :20:22.that would be true of an IMF programme as well. Politics do
:20:23. > :20:26.affect the eventual outcome. People did not just take the IMF as proof
:20:27. > :20:34.and follow through because there are political constraints. We have an
:20:35. > :20:37.economist as the Prime Minister of this country. I do not think there
:20:38. > :20:43.is a lack of economic knowledge here. What we have to do is follow
:20:44. > :20:47.through on the programme we have set for ourselves. Finally, I think one
:20:48. > :20:57.of the reasons why India has been under pressure is because of the
:20:58. > :21:04.possibility of the Federal Reserve. Do you think they are taking in the
:21:05. > :21:16.impact of their actions? I think they are hearing the concerns of the
:21:17. > :21:20.emergent `` emerging markets. This may not include foreign countries
:21:21. > :21:27.and their growth. Nevertheless, I do not think the Fed would like to see
:21:28. > :21:32.other countries go through these difficulties, and to that extent,
:21:33. > :21:42.they are mindful to some extent, you might even think that the shots that
:21:43. > :21:49.in burning the fired in May was to prepare for an eventual Fed
:21:50. > :21:56.takeover. Certainly I think we will be better prepared when that
:21:57. > :22:06.actually happens. I have no doubt that the Fed will be circumspect,
:22:07. > :22:11.will take the rest of the world into consideration, but the primary focus
:22:12. > :22:16.will be investing in the US economy. Thank you very much for speaking to
:22:17. > :22:22.us. It is not hard to see why India has great growth potential. It has a
:22:23. > :22:27.young, English`speaking population, the world's largest democracy
:22:28. > :22:31.potentially has the best growth prospects of any major economy in
:22:32. > :22:37.the world, that persistent problems like poverty and a lack of education
:22:38. > :22:42.are white India has been brought to the brink of crisis time and again.
:22:43. > :22:46.Central bank governor may have brought India back from the brink
:22:47. > :22:51.this time, but he acknowledges how hard it is to support the rupee,
:22:52. > :22:56.fight inflation and generate economic growth. But he remains
:22:57. > :23:01.convinced that he will achieve his aims within five years, one of which
:23:02. > :23:06.is to improve access to finance for Indian businesses, and that will
:23:07. > :23:11.support economic growth. But it is likely to take more than one rock
:23:12. > :23:14.star to have a lack `` lasting effect on India. That is all for
:23:15. > :23:25.this week. Join me next week for more Talking Business.
:23:26. > :23:33.Yet again, strong winds have been a big feature for today. It has been
:23:34. > :23:37.particularly stormy and parts of South Wales. It will be a blustery
:23:38. > :23:43.night wherever you are. Most places will continue to the showers. An
:23:44. > :23:47.area of low pressure is spiraling away from the east of the United
:23:48. > :23:53.Kingdom. Self of that, we have still got showers. `` south of that. It is
:23:54. > :23:57.south of the area of low pressure where we will have the strongest
:23:58. > :24:02.winds. For the next few hours, the risk of gusts of up to 60 mph. It is
:24:03. > :24:04.a blustery night wherever you are