Big-picture reforms in India may take some time, says Rajan

He was speaking at an event organised in Chicago on Friday by the Chicago Council on Global Affairs

India’s new government may take some time to unveil “grand, big-picture reforms” as it is currently focusing on implementation of stalled projects worth $50-70 billion that will pay dividends in the short run by helping on the inflation and income fronts, Reserve Bank of India (RBI) Governor Raghuram Rajan has said during a speech on India and the global economy at an event organised in Chicago on Friday by the Chicago Council on Global Affairs.

“In India, if you are looking for grand, big-picture reforms it may take some time coming... but in terms of decentralising, in terms of doing the small stuff which adds up to the big stuff, I think that is already happening,” Rajan said.

He said people had been expecting “major changes very quickly” from the new government and harboured the belief that it will be moving fast on a “number of dimensions that the people want them to move on”.

Rajan said the new Modi government had “stuck to the path the old government laid out” to show that there was continuity and this had benefited India in the eyes of the international investors.

“I think the government has essentially focused on implementation because that is really the need of the hour. Lot of projects are being stuck because of environmental permissions and forest clearances,” he said.

Rajan said it was important to get the stalled projects “back on the road” because there are $50-70 billion stuck in those projects, which once start functioning, would produce output that will help on the inflation and income front.

“Let’s get the projects back on track. The government is focused on that, it is not a headline news... but it is something that will pay dividends in the short run and I think that is what they are doing,” he said. Rajan also said when the number of stalled projects start to come down sharply, “you will see something good is happening”.

“We are still focused on macrostabilisation. Current account deficit, fiscal deficit, inflation, all those numbers hopefully will be better going forward and if the world started growing faster it will help countries like us tremendously,” he said.

Referring to massive infrastructure projects such as the Delhi-Mumbai Industrial Corridor and the Eastern Freight Corridor, Rajan said these are the kind of projects that “China used to do” and if they get well under way, it will raise India’s infrastructure to a whole new level and create opportunities to expand manufacturing.

He listed infrastructure development, regulation, financial sector reforms and human capital as the priorities to spur growth.

"We need to get easier regulation for opening businesses," he said, highlighting that there are relatively few ministers in the new government since the idea was to create a power structure that allows decisions to be taken more quickly.

"Everyday you hear about movement. I don't know how this is translating on ground but I am hopeful over time it will translate. It is all these micro reforms, the implementation that is happening" which would spur growth.

Focus is also being given on labour market reforms, including letting women work at night in textile firms and rules for apprenticeship.

He said the Prime Minister has been also talking about other important factors like sanitation which will have an impact on the economy in the long run.

Malnutrition is attributed to lack of sanitation and reduces mental and health capabilities.

"There are messages, when you probe a little deeper, they may have a lot of impact for the economy down the line," he said.