Rajan warns against complacency, says reform process must go on

The progress we made in recent past should not detract us from making further structural reforms: Rajan

Reserve Bank Governor Raghuram Rajan on Monday cautioned against getting complacent with the strong macro fundamentals of the economy and called for making harder choices in further reforming the structural bottlenecks preventing the economy from achieving its potential growth.

"We should not delude ourselves into thinking that our work is done, or postpone hard choices to a seemingly easier tomorrow....Our economy is full of possibilities, even as much of the world is mired in pessimism," Rajan told the bankers at the annual Fibac conference.

Blaming the ongoing perils the world economy is fighting on the quick-fixes adopted by leading countries and central banks following the 2008 crisis, he said, "The fragility of the world economy today is precisely because it has focused on quick-fixes rather than deep reforms."

Stating that the progress we made in recent past should not detract us from making further structural reforms, Rajan said there is much to be optimistic about our country, including the massive investments that are starting in infrastructure, the tremendous sweep of information technology across every facet of our lives and the radical changes taking place in the financial sector.

However, the question for us as a society is "whether we have the discipline to do what is necessary at a time when global conditions are propitious-commodity prices look like they will stay low for a time, helping the fight against inflation, and there is plenty of money around the world and at home, looking for investments, including in distressed assets, that can help us clean bank and corporate balance sheets," he said.

"As we strive to regain our place in the ranks of prosperous nations, we must remember that what sets poor nations apart from the rich is not people or resources or even luck but good governance, which comes from strong frameworks and strong institutions," Rajan said.

Concluding his valedictory address, Rajan said, "A summary explanation of the economic problems of the recent past is that they arose because we outgrew our institutions. A summary of the government and the Reserve Bank's measures to restore sustainable growth is that we are building the necessary institutions."