RBI chief cau­tions against send­ing agen­cies be­hind failed busi­ness­men

The Pak Banker - - 6BUSINESS -

Re­serve Bank of In­dia gov­er­nor Raghu­ram Ra­jan on Satur­day backed the govern­ment's fis­cal man­age­ment, bank­ruptcy re­forms and ru­ral job cre­ation ef­forts but cau­tioned that send­ing in­ves­tiga­tive agen­cies be­hind busi­ness­men who took risks dur­ing the boom years of the econ­omy could be coun­ter­pro­duc­tive if their pay­ment de­faults were not be­cause of malfea­sance.

Speak­ing at the Ram­nath Goyenka lecture on 'In­dia in the Global econ­omy' or­ga­nized by the Ex­press Group in New Delhi, Ra­jan said there are a va­ri­ety of rea­sons for de­faults other than wrong­do­ing. Ra­jan said that au­thor­i­ties have to draw a del­i­cate line be­tween deal­ing with gen­uine risk-tak­ing be­hav­iour and wrong­do­ing. The cen­tral bank gov­er­nor made the com­ment in re­sponse to a ques­tion, with­out re­fer­ring to UB Group chair­man Vi­jay Mallya who is fac­ing court pro­ceed­ings for de­fault­ing on loans of over Rs.9,000 crore.

"A lot of en­trepreneurs buoyed by the eu­pho­ria of 8-9% eco­nomic growth be­fore the global eco­nomic cri­sis (of 2008) and the suc­cess their projects with very less equity de­liv­ered, struc­tured new busi­nesses in a very op­ti­mistic way," Ra­jan said, adding that treat­ing ev­ery de­fault as malfea­sance with­out clear ev­i­dence would be coun­ter­pro­duc­tive to the spirit of en­trepreneur­ship. Ra­jan en­dorsed the govern­ment's bank­ruptcy re­forms, say­ing the cen­tral bank's in­tent is to have clean and fully pro­vi­sioned bank bal­ance sheets by March 2017.

Ex­perts said le­git­imiz­ing busi­ness fail­ure was key to mak­ing bank­ruptcy re­forms a suc­cess. "If stigma is at­tached to fail­ure, en­trepreneurs would not be forth­com­ing in re­solv­ing in­sol­vency. Le­git­imis­ing busi­ness fail­ure is es­sen­tial for en­cour­ag­ing en­tre­pre­neur­ial risk-tak­ing," said Su­mant Ba­tra, lawyer and for­mer pres­i­dent of In­sol In­ter­na­tional, a global body of bank­ruptcy judges and cor­po­rate turn­around ex­perts.

Ra­jan said the govern­ment's eco­nomic man­age­ment of keep­ing fis­cal deficit un­der check, tak­ing mea­sures to im­prove busi­ness con­fi­dence and to cre­ate ru­ral jobs, was in the right di­rec­tion. He said that en­sur­ing macroe­co­nomic sta­bil­ity was the key to tack­ling "manic de­pres­sive in­vestors" and to boost eco­nomic growth rate.

"The re­cent cen­tral bud­get em­pha­sized fis­cal pru­dence and ad­hered to past com­mit­ments, even while al­lo­cat­ing re­sources to­wards cap­i­tal spend­ing and fo­cus­ing on struc­tural re­forms, es­pe­cially in agri­cul­ture," said Ra­jan. He also wel­comed the govern­ment's de­ci­sion to set up a mon­e­tary pol­icy com­mit­tee. While the RBI gov­er­nor will no longer be able to set mon­e­tary pol­icy uni­lat­er­ally, shift­ing the de­ci­sion to a com­mit­tee is in the econ­omy's in­ter­est.

"Not only will a com­mit­tee ag­gre­gate mul­ti­ple views bet­ter than an in­di­vid­ual can, it will of­fer more con­ti­nu­ity, and be less sub­ject to un­due pres­sure," he said.

Ra­jan said that weak­en­ing the ru­pee was not the ideal way of boost­ing ex­ports as it would make im­ported raw ma­te­ri­als costlier. "How should we ex­port more? The an­swer is sim­ple-im­prove pro­duc­tiv­ity by build­ing in­fra­struc­ture and en­hance hu­man cap­i­tal with bet­ter schools, col­leges, vo­ca­tional and on-the-job train­ing. Busi­ness regulation and tax­a­tion should be sim­pli­fied and ac­cess to cap­i­tal should be im­proved. For­tu­nately, all this is what the govern­ment is fo­cused on," said Ra­jan.

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