Urjit Patel exclusive interview: It is important to grow a thick skin in this business, says RBI chief

Reserve Bank of India Governor Urjit Patel, in his first-ever exclusive interview to Rahul Joshi, editor-in-chief of Network18 Group for CNBC and MoneyControl.com, said that land and labour reforms were key to sustainable economic growth for Asia’s third largest economy. Patel also highlighted the global scenario saying that US president Donald Trump’s protectionist policies and rate hikes by the Federal Reserve could stoke financial volatility. The demonetisation move had to be backed up with more work so that the gains were durable.

Here are the key takeaways.

On inflation
Need to look beyond the headline inflation number to see how the 4 percent inflation target can be achieved, given that non-food, non-fuel inflation remains high. A neutral stance gives the RBI three options if the inflation outlook changes— raise rates, pause or cut them. An accomodative policy would reduce options.

On growth
Exports after a long time are now showing some life. Private investment demand may give a fillip to the recovery in the second half.

On demonetization
On the positive side, more savings have gone into deposits, mutual funds and insurance. Digitisation too has got an impetus. More work is needed so that these benefits are durable.

Urjit Patel, the new RBI governor. Reuters

Urjit Patel, the new RBI governor. Reuters

On the rupee
Current account (deficit) is low and at a level that is easily financeable. In that sense, the rupee is broadly where it should be

On Trump’s policies...
It is something that the world will have to start getting used to because it is a major change in terms of openness to trade, in terms of trade barriers, and in terms of the kind of fiscal policy that the new government may undertake.

…and its impact on Asia
Asia may come in for special treatment because almost two-thirds of the US trade deficit in goods is with respect to Asia.

On India’s trade policy
I don’t think that we should change our stance in any way because we do benefit from an open trade regime. I think India’s policy that the openness of trade should be carried through a multilateral process is the right one

On financial volatility
The Trump administration’s policies, against the backdrop of a tightening monetary policy stance by the US Fed has a real possibility of financial volatility going forward. It is a cause for concern for the world. It is a cause for concern for emerging markets and in terms of creating financial volatility. Nobody will be safeguarded from it and the situation has to be managed as it plays out

On Fed rate hike
The Fed had indicated in December that there would be two, possibly three hikes in 2017. So, a fair bit of that is priced in. The Fed’s views on what it was going to do in 2017 has been fairly consistent.

On key concerns
The lack of a consistent policy enunciation from major economies is the main source of volatility. The hardening of some of the internationally traded commodities is something to be worried about because that would feed into inflation.

On reforms for growth
If very fundamental reforms take place, especially when it comes to factors of production like land, labour, then a higher growth rate is possible. We did grow at some point, faster than where we are now, but it could very well be that that was unsustainable and this is sustainable. So, 7.5 percent growth rate is not something to be sniffed at or be disappointed.

On criticism of the RBI
It is important that one grows a thick skin fast in this business and I think we have done that. We have undertaken major challenges during these past few months and valid criticism is something that we are open for and we take it in the spirit in which it is given and try to improve ourselves.