Former Reserve Bank of India Governor Raghuram Rajan on Thursday hit back at Finance Minister Nirmala Sitharaman for claiming that he “presided over the worst phase” of the Indian banking sector. In an interview with CNBC, Rajan said he spent much more time as central bank governor under the Bharatiya Janata Party-led government than under the erstwhile Congress-led government.
“I had eight months in the previous government, and 26 months under this government, so much of my term was in this government,” Rajan told CNBC. “Look, let me not get into political back and forth. The reality is there is a cleanup [of the banking sector] which we started, which is under way, which needs to be completed fast. The recapitalisation has to be done, but it also has to be done in the non banking financial sector, which is seizing up.”
Rajan was the RBI governor from September 2013 to September 2016. The first Narendra Modi-led government came to power in May 2014.
The Indian banking system has lost $24.8 billion (Rs 1.76 lakh crore) due to non-performing loans of 416 defaulters being written off over the last three years, News18 reported earlier this month.
“It was in Rajan’s time as governor of the Reserve Bank that loans were given just based on phone calls from crony leaders,” Sitharaman said at a lecture at Columbia University in New York City on October 16. “Public sector banks in India till today are depending on the government’s equity infusion to get out of that mire.”
Sitharaman said she respected Rajan as he was a great scholar who chose to be in the central bank in India, at a time when the Indian economy was “all buoyant”. The finance minister said she was grateful that Rajan had conducted an asset quality review, but everyone should know what has caused the crisis in banks now and “where it has been inherited from”.
Indian economic growth slowed down to a six-year low of 5% in the first quarter of the 2019-’20 financial year. The RBI has cut India’s growth forecast for 2019-’20 to 6.1%.
On Thursday, Rajan told CNBC that the 5% growth rate will not provide jobs, given that one million (10 lakh) people enter the workforce every month. “India needs far stronger growth,” Rajan said. “But it is not going to come from tinkering. It really needs another generation of reforms. Good news: the government has the political strength and power to undertake those reforms. Bad news: it hasn’t done so so far.”
India’s unemployment rate touched a 45-year high of 6.1% for 2017-’18, data released by the National Sample Survey Office showed in May. The financial year of 2017-’18 was the first full year after the demonetisation of high-value currency in November 2016.
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