Expectations from PM 'unrealistic': Rajan

Govt 'sensitive' to concerns of investors, looking into addressing economic issues, says RBI governor

The expectations from the new government when it came to power last year were "probably unrealistic" but it has taken steps to create an environment for investment and is "sensitive" to concerns of investors, Reserve Bank of India (RBI) Governor Raghuram Rajan said, after his address to the Economic Club of New York on Tuesday.

He said in the minds of the people, Prime Minister Narendra Modi's image was that of "Ronald Reagan on a white horse" coming to slay anti-market forces and such comparison was "probably not appropriate".

Rajan, however, said the government had "taken steps to create the environment for investment, which I think is important".

The government is "sensitive" to the concerns of investors and is looking into addressing economic issues, he said.

Rajan's remarks come as the Modi-led government completes a 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 was taxes and the government had said it would not bring retrospective taxation again.

"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.

The corporate tax rate will also come down one per cent every year going forward, he added.

The former International Monetary Fund chief economist said "perhaps" 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". Rajan said there were several areas where the government had taken more "serious and significant" advances to improve investor confidence and propel growth.

On the issue of subsidies, he said petrol and diesel subsidies had gone.

"Going forward, these subsidies will be transferred directly into bank accounts," he said, adding that already the cooking gas subsidy was being transferred directly to bank accounts.

Rajan said there was 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 believed there was "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.

Another key legislation the government is focussing on is the land acquisition Bill, important from the perspective of certain public works, Rajan said.

He said since different states had their own land acquisition Bills, some commentators had suggested the possibility the states decide for themselves how to implement their provisions.

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.

Rajan also called the government's spending cuts "significant" and said "there has been some amount of fiscal consolidation over and above what the government is owning up to".

He said inflation "has come down tremendously in India" and rupee has basically stayed relatively flat since the beginning of the year.

"If you look at rupee's volatility relative to other currencies, you'd have to argue that the rupee has been one of the most stable currencies [against] the dollar," Rajan said.