Raghuram Rajan The Indian View of the World

The governor of India's central bank talks to Handelsblatt about oil prices, China's currency devaluations and why he still wants more growth for India.
Rahuram Rajan welcomes progress but wants to see more from India.

India is now the fastest growing economy in the world, and much of the credit goes to its central bank governor, who took office in 2013. Raghuram Rajan has said openly that India can only thrive if it roots out cronyism and gets to grips with inflation. He sits down with Handelsblatt to talk about his outlook for the year.


Handelsblatt: Mr Rajan. the year has begun with a big shock in the financial markets. Are there things we should be worried about?

Raguram Rajan: There are a few things coming together. Because of a whole lot of liquidity in the markets and easy monetary policy prices have been fairly elevated. How far they are from fundamentals is anybody’s guess.

Second, some of the concerns about what has been happening in China have market participants worried. Why have there been these moves on the yuan.

How worried are you that China could devalue its currency and this destabilize other emerging economies?

The Chinese have asserted at every forum that they are not trying to depreciate the yuan, that they will try to stay relatively stable. But they’re targeting a basket of currencies rather than the dollar itself.

Do you think fears over China’s economy are overstated?

I don’t have a strong sense from people I talk to that funding is collapsing.

And the third area for concern is oil.

People say China is slowing, therefore oil is slowing. But that is not really the equation, because in some sense Chinese oil consumption is still as strong as it was. What’s really happening in my opinion is that the supply in oil is significantly above demand, especially with Iran coming in.

Does the low oil price help the world economy?

The low oil price does help, but volatility doesn’t. And more to the point, it will help us if things didn’t move that much. Because when prices move this much, it creates concerns and I don’t think that the winner from the price movements benefit as much as the losers lose out.

Was the United States premature in raising interest rates?

I still think it’s a reasonable move. I think we have to come out of extremely accommodative policies at one point. And whenever we do that, directly or indirectly, there will be some volatility.

The tolerant way in which Germany has accepted the immigrants speaks for a larger humanity, which I think is extremely commendable.

Is the high liquidity in the market your biggest concern?

I think liquidity tries to find a home. And the homes it finds are not always the best places. So I’m actually glad that this process of withdrawal of liquidity is happening. I am glad industrial countries have stopped the flood, reversed the excessive, aggressive monetary policies. Of course that is creating a certain amount of tension for some emerging markets. But I think after the initial flush, investors are going to regroup and asking ‘where do I really want to be? Where will I get reasonable returns? I think over time investors will look around and think ‘where do I want to go’ – and hopefully they will think this is a good place to be in, not for the next three months, but for the next 10 years.

 India is proud it has overtaken China in terms of growth. Do you think this will continue?

Our growth rate is not satisfactory for us. China is a much richer country than we are. So it should grow more slowly than we do. I don’t compare India’s growth rate to China. I would like to compare India’s growth rate with what it could be and what it should be. I think we’re picking up slowly.

What growth rates do you need? Double digit growth?

In 2015 we had just over 7 percent despite two successive droughts, and despite a global economy which is not looking very supportive, we still have managed reasonable growth. So I do think we should do a lot better than where we are right now.

The reform hopes that the Western world had after the election of Prime Minister Narendra Modi has evaporated because of the political opposition he has faced so far. Are you confident that much of his reform agenda can be fulfilled?

First, I think people expected that India overnight would go from where it was to a free-market Western frontier economy. That was never in the cards, and never his model.

How do you see the situation in Europe?

I think Europe is obviously dealing with problems of immense magnitude, including what is the optimal amount of integration, as well as the problem of immigrants. I think these are huge problems. But also I think there are a lot of reasons for hope with what’s happening in Europe. Certainly the tolerant way in which Germany has accepted the immigrants speaks for a larger humanity, which I think is extremely commendable.

Do you think being so tolerant is a wise decision? 

How you integrate the immigrants who come in will define how smart it is. To the extent you can integrate them into an aging society so that they provide some of the useful capabilities and they build the right skills or have the right skills. I think that’s work in progress.

Not all countries have made refugees welcome.

I do understand that. Which is why (Germany) stands out. And I think people applaud that. I remember telling some German officials when I saw that, that this is truly commendable. I do hope it works out. I don’t think countries take these big decision with the certainty that it will go well. So there is a risk in taking it. And that makes it even more commendable.

Broadly I would say my optimism on Europe despite these big issues that it faces has certainly increased in the last few months.


Nicole Bastian is currently the coordinating editor of foreign affairs in Düsseldorf. Torsten Riecke is Handelsblatt's international correspondent, reporting on international finance and economic topics. To contact the authors: [email protected] and [email protected]