Exchange rate not impacting exports: Rajan

Brushing aside the contention that exchange rate is impacting exports, RBI Governor Raghuram Rajan today said the shipments can only be increased by raising productivity, improving infrastructure and simplifying regulations, which is in the domain of the government.
"The bottom line is that even though Indian trade has been slowing, the slowdown is similar to what has been happening elsewhere, with a significant portion due to a fall in commodity prices and a smaller share due to a fall in trade volumes.
"While goods exports may have suffered a little more over the last year, it is too early to discern a clear pattern, and certainly hard to pin the slowdown on the exchange rate," Rajan said while addressing the first Ramnath Goenka Memorial Lecture.

India's exports have been falling continuously since December 2014. It has dipped for a 14th month in a row, down 13.6 per cent in January to USD 21 billion due to fall in shipments of petroleum and engineering goods.
Observing that exchange rate is unlikely to be a helpful tool in increasing exports, Rajan said the "answer is simple - improve productivity by building infrastructure; improve human capital with better schools, colleges, vocational and on-the- job training; simplify business regulation and taxation; and improve access to finance".
"Fortunately, all this is what the government is focused on," he added.

On what is the ideal exchange rate, he said it should neither be strong nor weak.

"While RBI would not claim to know precisely what the equilibrium level of the exchange rate is at any given point in time, we intervene to moderate adjustment whenever we believe the movement is extreme, driven by sentiment, and likely to be reversed.
"Our intent is to prevent overshooting and undue volatility, rather than to stand in the way of the needed adjustment," he added.
The governor said the country's exports were doing quite well relative to other emerging markets.
"Indeed, over the last year, when goods exports have slowed, the real effective exchange rate has been rather flat. So someone who wants to absolve the exchange rate of blame will point to the recent period," he added.

He further said the orderly movement of exchange rate can be maintained by good policies that ensure macroeconomic stability, stable capital flows and encouragement to foreign investors through policies like 'Make in India'.
Observing that international meets are still dominated by
the old powers, Rajan said it is time for the emerging world to push its agenda.
Agendas in meetings like the G20 are still largely set by elements of the old G7, and often one finds that they have already agreed on their preferred approach, he said.
"It is only when the big powers disagree that the rest of us have some hope of influencing outcomes," he added.

He said: "The fault is not in the power structure, it is in us. Unless we amongst the emerging world put forward our agenda, build the intellectual and analytical basis for pushing it, and create coalitions to support it, we will have no chance of moving forward."
The RBI Governor said BRICS (Brazil, Russia, India, China and South Africa) do discuss policy issues and try and develop common approaches, but "we need to do more".
"We also need to build coalitions with sympathetic industrial countries," he said adding "In India, we need to build capacity in our think tanks and universities to inform our policy makers on how to approach and shape the international policy agenda".

He also said India needs to be well prepared to negotiate bilateral and multilateral treaties, so that "we do not wake up too late to the fact that we have given away the house with little in return".
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Rajan, while delivering the Ramnath Goenka Memorial Lecture, also emphasised on the strength of the Indian economic story and its future prospects.
"I do want to emphasise and this is important for our foreign visitors that given the inhospitable world economy and two successive droughts in India...Macro-economic stablisation must be part of the reason why we have over 7 per cent growth, low inflation and a low Current Account Deficit," he noted.

He explained that global slowdown coupled with consecutive droughts would have thrown the Indian economy into a tailspin in the past.,
"Let us not sneer at this level of growth given what is happening elsewhere in the world and given that our strongest growth was achieved when we had both agriculture going for us, rural demand going for us and most importantly the global economy growing for us.
"We tend to neglect that, we tend to forget that this is pretty good growth and I hope and believe it will become stronger as we build on this sound base," the Governor said.

Talking about NPAs, this has been a built over time and part of the problem is that banks did not have power to get promoters to pay or to put the stressed asset back on track.
"What we have been doing over time is to give banks the power so that effectively they can carry out out of court resolution with the borrower and out the stressed assets back on track," he said.
Rajan also stressed that "we need to pin the blame where the blame belongs...And if there was malfeasance, certainly malfeasance that was undertaken should be punished".
There are a whole variety of reasons why assets have got into trouble -- bad luck, bad structuring, over indebtedness, over optimism, he said.

"Remember this was also happening on the back of very strong 6-7 of very strong growth since 2003, so there are a lot of reasons apart from malfeasance either on the side of the lender or the borrower," he added.
Rajan said RBI is now working with banks to recognize and resolve stressed assets, even while getting them to raise capital where necessary.
"Our intent is to have clean and fully provisioned bank balance sheets by March 2017," he added.
He also cautioned against painting every problem with the same brush.
"...Let us also be careful that going forward we allow bankers to make reasonable decisions and to lend because this country absolutely needs a system that works in terms of lending to finance growth," the Governor said.

Replying to questions, he said there is no space to allow malfeasance and go away with the taxpayers' money via the public sector banks.
"Somebody who owns multiple flats in the poshest places abroad and has whisked away the money. That cannot possibly be (allowed)," he said, and added he was not talking about any specific person.