World expected too much from Modi govt, says Rajan
20 May 2015
A world under the ''specter of deflation'' expected too much from the new Indian government when it came to power last year.
Although those expectations were "probably unrealistic" the government has taken steps to create an environment for investment and is "sensitive" to concerns of investors, RBI governor Raghuram Rajan has said.
"This government came in with tremendous expectations and I think the kind of expectations were probably unrealistic for any government," Rajan said on the sidelines of a meeting the Economic Club of New York yesterday.
Prime Minister Narendra Modi has been given the image of "Ronald Reagan on a white horse" coming to slay anti-market forces and such comparison was "probably not appropriate."
However, Rajan said the government has "taken steps to create the environment for investment, which I think is important." It is "sensitive" to the concerns of investors and is looking into addressing economic issues, he added.
Rajan's remarks come as the Modi-led government completes one year in office this month, having received a commanding majority from an electorate that wanted jobs, economic development and respite from rising prices and corruption.
The RBI governor said a "big part" of the business environment is taxes and the government has said no to retrospective taxation.
"However once the tax authority levies a demand on you, there is a quasi-judicial nature of that proceeding and therefore it has to go through the courts before it is resolved. The government cannot intervene," Rajan said.
"Legacy issues are winding their way through the courts, including issues based on laws that existed before they were changed," he said.
Rajan also pointed to the reduction in corporate tax rate, which will come down one per cent every year going forward.
Yet he felt India could have done a "better job" in handling these issues but "going forward the government says no more of this kind of stuff we will do."
There are several areas where the government has taken more "serious and significant" advances to improve investor confidence and propel growth.
Subsidies on petrol and diesel have gone, he said.
"Going forward these subsidies will be transferred directly into bank accounts," he said, adding that already the cooking gas subsidy is being transferred directly to bank accounts.
Rajan said there is a "broad consensus" for the Goods and Services Tax (GST) and while he had hoped for the GST Bill to have passed in the just concluded session of Parliament, he feels there is "enough momentum" that "it will be done well in time and roll out by March 31 or April 1 next year."
"In fact (the government) is going ahead with the apparatus to ensure that it is actually done," Rajan said.
On the Land Acquisition Bill, which is important from the perspective of certain public works, Rajan said, since different states have their own land acquisition bills, it would be better to leave it the states to decide this.
There are tremendous plans for investment, particularly in the Mumbai-Delhi industrial corridor and freight corridors, the RBI Governor said.
"My sense is that things are happening," he said.