The Governor of the Reserve Bank of India (RBI), Raghuram Rajan, has shown tremendous experience and knowledge when it comes to the global financial world. During his term at the International Monetary Fund in 2005, he released a paper that sought to warn the entire world of a turmoil that was about to hit the world.
True to his words, and as if a prophet of doom, in 2008, the world experienced a global financial meltdown. Now, Dr Rajan’s words and actions as far as the global financial world is concerned, is given all the urgency that it deserves.
Last week, he delivered a speech at a program held by the London Business School, where he commented and predicted the Great Depression. But because of his astute stature in the field of finances, his remarks have generated so many reactions.
The RBI had to come out clearly to expatiate on what Dr Rajan actually meant. According to them, what he meant was that the kind of policies been enacted by most central banks are not the best and are similar to the strategies that were used in the 1930s, and that if care is not taken it can plunge the world into tumultuous moments as far as finances are concerned.
Consistently, Dr Rajan has been making his input and expressing his concerns over the competitive monetary policy facilitation that has been developed by central banks in the world.
From his perspective, the non-systems in the international policy poses a threat to sustainable growth and development in the financial sector, due to the fact that once they are terminated, they have the potential of wreaking havoc in the financial sector.
He said that policies of these kind will move the world to what he describes as “music crises”, as in this modern era, actions do not occur in isolation because an action executed in one area might have an effect in another area. Therefore policy makers have to think outside the box and factor in measures to be able to deal with any unforeseen circumstances.
Indian policy makers are in a dilemma as far as the monetary easing is concerned, coupled with the contraction of the world trade. Taking a retrospective look at the economy, they would have to decipher ways that will prevent the Indian economy from running into the abyss.
Looking at an economy like that of India, which is cash-stripped, the best solution to this predicament is to focus on foreign direct investments, instead of being overly concerned on the foreign institutional investment, which will be dependent on what is happening in the outside environment.
The woes have been aggravated by slang demand, capacity overhang and the fact that the banks are mounting assets that are non-performing. With the dwindling fate of the economy, the government has to take measures that will rekindle and reenergise the economy. They have to make sure that all the economic indicators are favourable and can enhance the economic sustainability, growth as well as the development of India.