India on right path but over-regulation a worry: Raghuram Rajan

Economic reforms in India are moving in the right direction but outdated regulations are still a major roadblock, Reserve Bank of India Governor Raghuram Rajan (pictured) said on the sidelines of the World Economic Forum in Davos.

“Let me put it this way, the direction is the right one. The level is wrong. We have too much of the wrong kind of regulation and too little of the right kind of regulation,” Rajan said in an interview to Bloomberg TV.

“So we do need to hack away at this, and it will take time. It doesn’t happen overnight. We are doing it. We do recognise that we over-regulate. That business needs a better environment… At the same time, there are a whole set of new businesses coming in that we have to find ways to deal with. For example, online lending,” said India’s central banker.

Rajan rued that people tend to talk only about big ticket items. “One tends to focus on the big iconic items like in India there’s now a goods and services tax which is likely to unify the country. That’s stuck so far in some Parliamentary discussion between the opposition and the government. Hopefully, it will be done sooner rather than later. But really there’s a lot going on the ground which is less obvious,” he said.

“For example, last week the Prime Minister inaugurated a programme called Startup India which is about eliminating the bureaucratic hurdles of starting new business. So far, new business had to register with up to 20 different authorities including the pension fund… You have one employee, why do you need a pension fund at this point? So the idea here is to make it simpler to start and also remove the inspections. No inspectors would show up for three years. You self-certify what you did,” he said, adding that these kinds of reforms are building on each other.

“And there’s a very vibrant private sector in India, which is taking off. Internet market places are a fantastic new development because what India doesn’t have is cheap land. You can’t build retail stores everywhere. But with a virtual warehouse, you can connect small town households to the big market. And you can connect small town manufacturers again to the big market,” Rajan added.