Mr. Raghuram Rajan and His First Speech.

5 things to know about Mr. Raghuram Rajan:

1. IIT Delhi, IIM Ahmedabad and Phd from MIT after a thesis on the banking sector.

2. He was the Economic Counselor and Director of Research at the IMF from 2003 till 2007.

3. He served as the honorary economic adviser to Prime Minister Manmohan Singh in 2008.

4. In 2012, he was appointed as the Chief Economic Adviser to the Finance Ministry.

5. In Fault Lines, he argues that serious flaws in the economy are also to blame, and warns that a potentially more devastating crisis awaits us if they aren't fixed.

Mr. Raghuram Rajan at work:

He said RBI should focus on inflation, and warned that by trying to manage the exchange rate and growth too, the central bank risked not undertaking either of the tasks successfully. This was submitted in the report submitted by him to the Planning Commission.

His first speech as the RBI Governor had many interesting points:

1. His emphasized on preserving the purchasing power of the rupee, both external and internal, has dual implications. One being the emphasis on containing inflation. Monetary stability means low and stable expectations of inflation and the aim is to move towards some form of inflation targeting. (Growth for him means financial inclusion). Other reference is by raising the overseas borrowing limits from 50% to 100% for banks and the special concessional swap window FCNR (B) deposits will give confidence to banks. These measures should help the INR.

2. He is in favor of the creation of new banks, which should increase competition and improve efficiencies within the sector, bringing down the very high margins that banks enjoy. Improving the recovery system by focusing on efficiency and fairness and yet coming down hard on the mismanagement and fraud. 

3. He focused on liberalization as the key and would take steps with government and the regulators to liberalize the markets.

4. Specific Actions for Households: 

Firstly, issuance of Inflation Indexed Savings Certificates linked to the CPI New Index to retail investors.  Secondly, improving the payment system for households through the use of technology and states – “We want to make payments anywhere anytime a reality.” Even mentions the possibility of the mobile based payment systems. 

5. Finally quotes a line from my favorite poem - 'IF' by Rudyard Kipling. 

Indian Infrastructure Sector - Mr. KC Chakrabarty

The slowing of the economy will have a negative impact on the infrastructure companies. India Rating has also maintained a negative outlook on infrastructure sector.

The following are the points of the KC Chakrabarty (Deputy Governor, RBI) Keynote on Infrastructure Financing in India. 

Hurdles faced:

Currently, more than 55% of the projects are stuck due to regulatory controls like lack of clearances and delay from government or the Supreme Court. This puts a major pressure on the banking sector as infrastructure being a capital intensive, large chunks of capital gets blocked while regulatory actions are taken therefore turning loans to NPAs. 

Stalled Progress: 

In Mr. Chakrabarty's Words: There has been no dearth of policy pronouncements and reengineering of processes aimed at improvement in the investment climate for infrastructural projects. However, there seems to be little headway insofar as achievement on ground is concerned. Let me highlight some disconcerting facts:

• Out of 576 SEZs that have received formal approval, only 172 are operational
• Against a target of awarding road projects aggregating 50621 kms during 2008-13, only 10690 kms have been awarded. Many of the projects awarded have yet to see commencement of work due to problems in achieving financial closure, delays in land acquisition and obtaining environmental clearances
• Out of 16 Ultra Mega Power Projects planned, contracts for only 4 were awarded. Out of this only one has become operational and another is nearing completion and that too much beyond the scheduled dates. Even the one project that has commenced operations is running much below capacity. Lack of clarity on coal import, forest clearances and land acquisition delays are creating impediments. 
• Under the New Exploration and Licensing Policy for exploration of crude oil and natural gas, of the 251 blocks allotted, 110 have reported discoveries but only 6 are actually operational.

Credit Space:

Outstanding bank credit to the infrastructure sector, which stood at Rs. 72.43 billion in 1999-2000, has increased steadily to Rs. 7860.45 bn in 2012-13, a compounded annual growth rate (CAGR) of 43.41 per cent over the last thirteen years against an overall CAGR of bank finance to all industries at 20.38 per cent during the same period. The share of bank finance to infrastructure in gross bank credit has increased from 1.63 per cent in 2001 to 13.37 per cent in 2013. 

Overall the infrastructure is not lacking due to financing troubles but rather due to administrative and regulatory hurdles.