MUMBAI: Reserve Bank of India governor Raghuram Rajanhas said he believes India is likely to continue with its major economic policies irrespective of the government at the Centre after the upcoming general elections.
“My sense is if there is a stable coalition post election, no matter which persuasion it is, the broad policies will continue,” Rajan said while speaking to CNBC in Sydney. “There may be difference in details but they are all for passing the Goods and Services Tax, all for a number of actions that the current government is taking.”
The central bank is likely to continue the level of coordination and discussion with the government after the elections, Rajan said.
Stressing that India is well placed for tapering, Rajan said that monetary authorities in the developed nations cannot act unilaterally within their narrow definitions because their actions have implications for developing nations.
Although tapering is a necessity, the message should not be that “you mend for yourselves” because it could sow the seeds of the next crisis, he said.
Rajan said there was a need for advanced economies to recognise the spillover effects of their monetary policy actions on the emerging markets. “We have to realise that we are fully integrated world. The problem is, each country has mandate and that precludes looking outside.
You will set monetary policy to maximise employment and get price stability in your own country, but, in an integrated world, it is too narrow. We have to be broader than this. In the short run, it may not matter much but these crises are not unrelated to the policy that we have been following in emerging markets and industrial countries,” he said.
The RBI chief emphasised on the need to pay attention to the language of communication used by central banks. “There needs to be some sensitivity and certainly not the language that says you are on your own. That language is not helpful,” said Rajan.
In May, when the Federal Reserve first talked about tapering, Indian bond and stock markets reacted negatively, with the rupee falling to an all-time low. In December, the Fed reduced bond purchases by $20 billion to $65 billion.
Rajan emphasised on the need to bring down non-performing loans of banks, especially state-owned banks. He said that the new framework in place from April 1 would help in this regard.