This is International Monetary Fund chief economist designate Raghuram Rajan's prescription for the Indian economy. Rajan pointed out that these reforms are necessary before India proceeds to a full float of the rupee.
In an interview on Friday, Rajan said: "India is broadly in the right direction, but must speed up the pace of reforms."
While refusing to specify whether the time is ripe for making the rupee full convertible, he pointed out that the government must spell out the roadmap for it. "You must give a road map so that everybody is prepared for it, and then stick to it" he said.
Rajan also commented on the massive imbalances in the global economy as a result of the US economy's huge current account deficit.
"A huge US current account deficit is not sustainable. At some point people will stop holding assets in this country. The imbalance can be corrected through the value of the dollar and through higher consumption in the developing countries."
He also said that developing countries should ideally have current account deficits rather than surpluses.
India's huge fiscal deficit, according to Rajan, is a "big problem" and it is probably "crowding out private sector credit."
Banks, he said, are chasing safe government paper as an avenue for safe lending, rather than take risks with commercial lending.
The system of priority sector lending, Rajan felt, is not necessary to help those who need credit as credit accessibility is at times a political issue.
"Instead of giving subsidised credit, you must offer direct subsidy to some sections and not force banks willy-nilly to lend to them regardless of the credit quality," he said.
On being asked whether India needs to follow a single regulator model on the line of Federal Supervisory Authority of the US, Rajan said: "I do not have a clear-cut idea. Since India is witnessing growth of new markets, it makes sense to go back and take a hard look at the issue. It is not super-regulator versus multiple regulators. The question is: do you have the right regulator?"
The India story, according to him, is played much bigger in India than outside. At the same time, Rajan admitted that there is a genuine India story.
"Companies are getting the confidence that they can compete. In Asia, there are only two growth spots -- China and India."
Asked whether the pile of Indian forex reserves is enough, Rajan said that the Indian level is still "far from excessive", given China's huge reserves.
A firm believer against any kind of protectionism, the IMF chief economist designate said: "In general, protectionism is bad. It makes industry stagnant when it lobbies for more protectionism. So protectionsim breeds more protection. Look at the Indian auto sector. Had been protected, it would have never grown.