India not in a forex crisis, Rajan assures IMF-WB meet

12 Oct 2013

India will not need to tap the International Monetary Fund for funds in the next five years as the country is not facing any financial or economic crisis, Reserve Bank of India governor Raghuram Rajan said in Washington on Friday.

In his maiden attendance at the annual meeting of the IMF and World Bank as RBI governor, Rajan vehemently insisted that India was not a country in crisis

Rajan's comments at a panel discussion of the multilateral lenders came amid arguments that India should approach the IMF to negotiate a credit line to avert a 1991-like situation, when the country faced a foreign exchange crisis. Such suggestions were at their peak toward the end of August, when the rupee plunged to record low of 68.85 against the dollar.

"There is no chance we will go to the IMF for money in the next five years. We have $280 billion of reserves. We need to change the perception about India. We are lending to the IMF. Perception should be changed now," Rajan said.

Other panelists included IMF managing director Christine Lagarde, Council of Economic Advisers chairman Jason Furman, People's Bank of China deputy governor Gang Yi and Spain's minister of economy and competitiveness Luis de Guindos.

Rajan admitted that India had gone off the growth path. "We do not have a financial or economic crisis. We have exchange market turmoil, inflation challenges, and we need to get our growth back ... but these are certainly not crisis issues," he said.

"Our growth has fallen from close to 10 per cent in 2010 to 4.5 per cent now. We need to bring back the growth. The things we need to do are relatively small but the perception is all our deeper structural problems will take time to solve," Rajan, a former chief economist of the IMF, said.

He pointed out that the country had a debt of 66 per cent of GDP, of which as much as 90 per cent is denominated in rupees. External debt was just 22 per cent of GDP.

"We have reserves of 15 per cent of GDP. We can pay back all the short-term debt tomorrow. Most of the FIIs (foreign institutional investors) have equity investment rather in debt. So my question is, why do we have a perception of a country in crisis," he said.

Rajan said that corporations in India could face difficulties in paying off external debt, but it does not pose a system-wide risk to the country's financial sector.

His remarks came soon after the IMF slashed India's growth outlook for this fiscal by almost 2 per cent from the previous estimate, citing lack of investment, project delays and high inflation.

''We have our own discussions with the Fund (on) whether those estimates are right. I think we could be a little stronger than the World Economic Outlook suggests. I also think that the current account deficit would be significantly smaller than what they suggest,'' Rajan said, while sharing the dais with Christine Lagarde.

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