Raghuram Rajan Talks To Prannoy Roy About His 2018 Forecast For India

Former RBI Governor Raghuram Rajan says that demonetisation led to a substantial slowdown in growth but a GDP growth rate of 8 per cent is still achievable in the future. He talks to Prannoy Roy about the key trends to watch out for in 2018 - including rising oil prices and a possible Bitcoin bubble - and his love for academia.

Here is a full transcript of Raghuram Rajan's interview with NDTV:

NDTV: Thank you very much for joining us. How many speeches have you given, how many interviews?

Raghuram Rajan: Well, a few but it's a pleasure being with you.

NDTV: It's wonderful to be with you. I miss our whole annual criticisms of the economy.

Raghuram Rajan: Yes. Well hopefully, I was defending. Hopefully I was defending.

NDTV: But so much has happened since you've been away. May I just say that India misses you? However, I am not sure if you miss India. Do you?

Raghuram Rajan: No, no. I miss India and I keep coming back, so.

NDTV: So you get a feel for it as well and I am sure you follow it a lot from Chicago.

Raghuram Rajan: Absolutely.

NDTV: So in the last year, just coming to the Indian economy, then we move a bit to the global economy. The Indian economy, last year was, the global economy rebounded. For Europe it was a big surprise, America did very well. India didn't seem to take advantage of that. Why is that? What did India miss out on last year?

Raghuram Rajan: Well we had two big headwinds right? We had first the lingering effects of the demonetisation which pushed into 2017 and then we had GST. Now, I think long term GST will have very positive effects and I mean, there are people who say we should have prepared better, we should have delayed it. My sense is that many of the problems just come from doing it. So if we solve those problems and go forward, that would be very beneficial. I think when people look at the growth effects, those were big effects and you know, we've been held back relative to the world economy. Most of the countries have had their growth figures updated, we have had them downgraded; and that's partly because of these headwinds. I think there is an emerging issue now, which is with the oil price and the question is, how much does this subtract from growth? Because we obviously benefited when it went the other way and now this will affect us negatively.

NDTV: You mean when it came down from almost twice what it is today? Down to about 50-45 and now it's back up to 60-65.

Raghuram Rajan: Right. So when it came down, since we import oil, it showed up as an addition to GDP. Now when it is going up, it will show up as a subtraction, because our imports will go up and that certainly is source for concern going forward because that hasn't yet registered in the GDP data.

NDTV: On the GST, lot of people say it's over complicated, too many rates, it could have been simple, but you're right; implementing anything as big as that. It was a good policy. But you're saying demonetisation wasn't even a good policy, not how it was implemented.

Raghuram Rajan: Well, I think the jury is still out, we haven't had the last....

NDTV: Jury is out on demonetisation?

Raghuram Rajan: No, no. We have a sort of an argument that it would improve compliance. Till we have the last tax numbers in, I think the jury is still out. That said, I would suspect that a substantial part of the growth slowdown was because of, was because of the effects. Some of it was in the informal economy which weren't immediately captured, which we are seeing now, businesses that have shut down because they could not survive that episode. Now, are there any positives? We have to wait and see. I think it did give some fillip to the payment system but that's small.

NDTV: Digital payments.

Raghuram Rajan: Digital payments. But that's relatively small compared to the....

NDTV: And there are other ways to do that.

Raghuram Rajan: Yes.

NDTV: Tough question. You would never have done demonetisation?

Raghuram Rajan: This is an easy sort of answer to give in hindsight. I think the government at that time asked us our views, we gave them, but at the same time, I think it's very hard.

NDTV: What was your view?

Raghuram Rajan: I didn't think it would have the desired effect and that it would have cost.

NDTV: I think most economists tend to agree with you on that.

Raghuram Rajan: Yes. I mean any monetary economist would say better print the money before taking it away. But that said, I think the real sort of question is should the RBI be a fifth column if the government wants to go ahead on something? And my guess is both legally as well as ethically, you can't stop the institution. You may refuse to go along with it, but you cannot stop the institution.

NDTV: But I think that is a very crucial aspect in any democracy, to have an independent Reserve Bank or a monitoring authority. Is that being eroded a bit? Not just by this government but historically?

Raghuram Rajan: I think there are always steps forward and steps backward and you have to look at the net effect.

NDTV: At least you didn't give me the Indian answer which is "it all depends".

Raghuram Rajan: That's an economist's answer. But I would want to say that if you want to look at the positives, I think the job that this Monetary Policy Committee is doing has been a really good one, in the sense that it has withstood tremendous pressure, the usual pressure that, in some sense, the Governors used to face. But it has faced it and has stuck its ground. I am not commenting whether its grounds are right or wrong, but it has said that inflation is a problem and that is why we are with these rates where they are; and as we see inflation come back up, more people are recognising that it had some merit in what it was saying.

NDTV: So you were okay with the Monetary Policy Committee. Do you think that kind of eroded a bit because it has some government officials in it?

Raghuram Rajan: It has government appointees. I mean that said, we are all government appointees as the Central Bank Governor or the Deputy Governor, we are all appointees. The only non-appointee is actually the Chief Economist of the Central Bank. The Executive Director and Chair of Monetary Policy was an RBI sort of, who moves up the RBI ranks. That's the only person who is not appointed by the government. This is an entirely and should be, a government appointed committee. However, once the government appoints, they should leave it to do what its job is.

NDTV: Which is very tough for Indian governments, the way it interferes with all public sectors. It's a tough one. So over the years, is that a worry that there is a trend towards less independence of the RBI?

Raghuram Rajan: I don't think so again. I do think that the amount of freedom that you have in various ways is substantial. I do think there is a constant tussle between the bureaucrats, between the Finance Ministry and the RBI and in a sense, this was engineered. If you go back to the documents of 1930s, you find that there were these kinds of issues of turf, who governs this, who governs that and as I said, wax and wane on the amount of independence the RBI has, so it's not a uni-directional move.

NDTV: For years, people have talked about India hitting a growth rate of 8-9%, being the next China. We haven't quite got that. What are we doing wrong? Or what should we do to get to 8-9%?

Raghuram Rajan: I think one of the major achievements over the last few years, both by the UPA and the NDA government has been macro-stabilisation. We have worked on bringing the fiscal deficit down. We've worked on bringing inflation down. In fact, today I was meeting an Indian entrepreneur who told me that he is now able to get financing from outside minus the additional 6% they used to charge, because the Rupee was so volatile and inflation was so high; so financing costs have come down because of our macro-stability, that's good. The downside in the last few years is that the micro-implementation has lagged behind, whether it's because government officials aren't willing to take decisions, because we have got an excessive amount of centralisation. It's less clear why that's happened, but think; the Delhi Mumbai Industrial Corridor; every international conference I went to, I said this is coming; this is China style mega projects. Where is it?

NDTV: Yes. It's just implementation, that's our problem.

Raghuram Rajan: Implementation, implementation, implementation.

NDTV: Which they are just wonderful at in China. We have the ideas but we are just not implementing.

Raghuram Rajan: We need to search out the bottlenecks. I think in implementation, land acquisition is a problem. Can we fix it? If the Land Acquisition Act is preventing us, why don't we sort of modify it? The many millions of jobs that come from construction; that will come from industry that sits out around infrastructure. We are missing out on that. So that seems much more important in terms of the next step than almost anything else. The other place where we know what to do but are not able to do, it is power. We are the point where we can give 24x7 power to anybody in the country and benefit from that, because the people getting the power would earn better incomes, but the people producing the power will finally have plant-load factors which will allow them to make a profit and pay back the banks. So from both sides; what's standing in the middle; the distribution company. We have had three goes at it, last one was UDAY. I don't think that we have evidence that UDAY is working. We need to look at it and understand why it's not having the effect that was promised and make changes that are necessary there.

NDTV: These are key, key issues you've raised. Micro level management of construction and big infrastructure projects is lacking and what you mentioned just now, the power sector is just....

Raghuram Rajan: It needs to be re-vitalised. These are central....

NDTV: And we know it but just can't seem to be able to do it. So, given these bottlenecks, do you think it's going to be possible for India, what kind of growth rate do you think we can achieve realistically? Is that 8-9% out for us?

Raghuram Rajan: We were at 8%, before the sort of slowdown. We will get back to that. I think, to some extent, given our entrepreneurs, given our young population, we will do that and now we have some tailwinds coming from things like, you know, the eventual successful GST launch. However, every year there will be a new shock. This year, the interest rates are going to go up, some of the money will start getting a bit worried. Oil prices are going up. So that underlying growth of 8 is going to be affected by these kinds of shocks. To really get those jobs that we really need in India, we need to have an underlying growth of 9 or 10, which means all these micro level reforms, including education. We need good students to be produced. I was just talking to the President of the World Bank and one of the things they are worried about, which we've been worried about in India for a long time, is a tremendous number of malnutritioned kids who are going to come out in the labour force without the kind of mental capability.

NDTV: NDTV is just going to do a campaign on Hidden Hunger because news channels love covering when there is a famine or some big event and 30 children have died but millions of children are dying or there is this hidden hunger which puts them at a terrible disadvantage in a slow process. That needs to be talked about. I am glad you raised that.

Raghuram Rajan: Exactly, you know, whatever education improvements we do or are going to do are sort of wasted in some sense if these kids grow up with a stunting in growth, in mental capabilities, that don't allow them to participate. We are sort of condemning them. This, if there was one sort of priority for the country from a social perspective, it should be this.

NDTV: Hidden Hunger is a terrible problem which is not yet emphasised enough, I think, by the media or by anybody. This is Davos and a lot of focus and attention is on foreign investment and FDI; and the World Bank. You were talking about World Bank, you reminded me this, show that China has around 5-6 times FDI per year that India has. Now Foreign Investment, FDI, does affect your growth rate. In fact, I've followed China since the first McDonald's came to China. I used to go to China when everyone was on a bicycle and then FDI came in a wave. We are what, about 30 billion, 30-40 billion, they are about 200 billion a year. How can we get more FDI into India? Why aren't we getting it?

Raghuram Rajan: I mean to some extent, we are one fifth of that of China as an economy so one fifth-one sixth FDI is presumably sort of par for the course, given our size. However if you want to get to that level I mean, one of the concerns we should have is that when you look at global supply chains, we underperform. We are less part of the global supply chains than other countries. So how do we remedy that? And I think it goes back to these micro level reforms, how do we get first class infrastructure? I mean China built out the infrastructure but also it had, you know, the kind of base from which the firms that came in could build. So it had a fairly well educated population that people could hire into the factories. It had unleashed animal spirits in the village enterprises and so on. Now I don't think we need to imitate China and probably it's not feasible to do that, but if we build out our infrastructure, if we have 24x7 power, minimum requirements for people to invest...

NDTV: These two simple things would be your prescriptions to try and hit 8-9%?

Raghuram Rajan: I think we definitely can if we focus on this and construction would create so many jobs. You remember Peepli Live? He sort of moved into a construction job; but there are much more value added construction jobs that we can have, but I think more than that, we have our own strengths. The strength of our IT industry that people admire, but I would also, so that the strength of our entrepreneurship as well as the confidence that our entrepreneurs have, that our property rights are secure, which doesn't necessarily exist in other countries.

NDTV: So you saying India is more like my golf; full on potential, but I haven't achieved it in 50 years.

Raghuram Rajan: No. I am more optimistic that we will do it. I think we need a consensus on the kinds of buttons that we need to push. Certainly, the government has done some of that with the GST as well as the Bankruptcy Code reforms. But I think some of the things that people expected would happen in terms of re-vitalising projects that were moribund and the big dream projects, Delhi-Mumbai Industrial Corridor, those we need more.

NDTV: I think the general kind of feeling is that there are ideas, there are thoughts but then just nothing, not nothing, but there is very poor implementation on the ground which is the key to employment and the growth rate.

Raghuram Rajan: We need to understand the bottlenecks there are because it's not as if we don't have smart bureaucrats. Mr Jaitley has repeatedly talked about repealing the Acts which sort of hold officials responsible for taking decisions if they unduly benefit some private party, even if there is no gratification involved. So there may be, I don't know, an overhang of worry amongst bureaucrats to take decisions, given the corruption cases and so on that have taken place. I don't know, this may be an excuse, this may be a reality but we really have to look at why we are not moving faster on implementation.

NDTV: That's a very good point. Various people in the government, Ministers have said, that to increase growth rate, we are going to double India's agricultural income. Each farmer's double it by 2022. Double, in 5-6 years, income that's growing at 14% a year in agriculture? I am an agriculture economist; unless you get your soil moisture content at perfect levels throughout the country, you are not going to get that. Is there any hope? Because agriculture today is meant to be suffering more than ever before and it was slightly reflected in the Gujarat elections also, where the ruling party did well in cities but very poorly in rural areas. How does one get farmers producing more, earning more?

Raghuram Rajan: I think that's a question that has faced every government and clearly, you know, the answer can't be get them indebted and then sort of waive their loans. That seems like a fiscal transfer.

NDTV: Spoken like a true Banker. Don't get them indebted anyway.

Raghuram Rajan: Arundhati Bhattacharya has talked frequently about this. I have talked about it, the cost of sort of vitiating the credit culture. I think that we really need to invest more. We need to figure out what optimal farm sizes are, what optimal sizes are for the kinds of crops that are grown.

NDTV: They should talk to me, my PhD was on Farm Size and Productivity. They should do the opposite of what I say, but carry on.

Raghuram Rajan: Well, that may hold true for all us economists. Again, we don't have a dearth of ideas in the farm sector and there are various projects underway that really, really re-vitalise India. And the problem to some extent is that every once a while we fall under this sort of old style thinking, "oh, we have to preserve them on the farms". No. The only way you are going to make farming viable is to get most of the people off the farms, into rural industry, into other kinds of...

NDTV: Yes, exactly. Like China has done actually.

Raghuram Rajan: And leave a smaller number on the farms who now farm it much more efficiently and then can get adequate incomes. To have more and more people depending on that farm, without the; I mean productivity will do something for you but really, it can't support so many people. The US used to have 40% of its people in agriculture at the turn of the 20th century, now it's 3-4% and they produce more than the 40% used to produce. That's the only way we are going to do it, that we need to figure out ways alternatively.

NDTV: So coming to one of your favourite topics and the current situation. Things were going pretty well but this last year, there has been a few slippages. We have seen slight signs of inflation coming back. We have seen a slight fiscal slippage and the current account deficit. What can be done by the government and the RBI to reverse this again, because this is not a healthy trend?

Raghuram Rajan: I think that on the RBI's side, presumably the Monitory Policy Committee will do what it takes to keep inflation under control. But of course, with rising oil prices there is a spillover into inflation, which we have to be wary of and they will have to think about it. I think on the growth side, our main problem is not little demand, our main problem is supply side constraints and therefore we need to fix those constraints. I think slowly they are being fixed, I mean some of the adversity from last year will dissipate but I think at this point, with the world raising interest rates, with the money starting to flow out, I mean markets seem extremely complacent at this time, they would wake up at some point. So with the Fed sort of on a path to tighten this, a wrong time to abandon the macro stability we've achieved over the last few years. So I would say there should be more focus on the programmes we've already announced, to make them work. Take a close look at UDAY, what's not working, what needs to be fixed.

NDTV: That's in the distribution of electricity. So you are saying look at the real economy, get that right and don't worry too much about interest rates. So you think interest rates, don't think interest rates are too high in India?

Raghuram Rajan: I don't think. I mean if you look at the real interest rates, you know, most people look at the current real interest rates and say "oh! Interest rates are really high". You have to look a little ahead, what's going to come and if you look at what's coming, I think real interest rates in India are not out-of-sync with rest of the world.

NDTV: Really? You would say it.

Raghuram Rajan: Look, what is inflation, if you project inflation, I am going to guess, I don't know anything about details, but it's about 5% now. Yes, the last number is lower but it's anticipating around 5, whereas the policy rate, it said 6. So there is a 1% real interest rate, you know, where in the world...

NDTV: Is it fair to look at the policy rate because the real rate is, I mean the market rate...

Raghuram Rajan: I think the long term bond rate is telling you the anxiety of the market.

NDTV: Yes, that's true, that's true.

Raghuram Rajan: Rather than the reverse. It's telling you that the market actually thinks that the inflation maybe higher, which is why those long bonds have picked up. So I think this would be a good time to reiterate our desire for macro stability. The problem is not too much demand, the problem is fixing the supply, sort of shackles, and over time, as sort of the international environment normalises, you know, maybe we get more space. But right now, I would say, do the implementation.

NDTV: Just stick to a tight monetary policy, stick to the current interest rates, don't lower them, look at the real economy and get that working. That's the main focus?

Raghuram Rajan: Right. I will just not use the word tight monetary policy. I would say appropriate monetary policy. But don't be adventurous on the fiscal either because the state governments already, with sort of tight balance sheets and they are adding to the fiscal, so careful overall, but focus on implementation and the projects already announced, underway, move them forward.

NDTV: But don't lower interest rates.

Raghuram Rajan: Look, I mean, again, monetary policy.

NDTV: Be a man, say it. Man or a mouse?

Raghuram Rajan: I am a mouse as far as monetary policy goes. I think the Monetary Policy Committee has too much advice from too many people. It should do what it thinks is appropriate; and I am not going to add my voice to the voice of; all I would say is that, you know, they are trying to do a creditable job, they should be allowed to it.

NDTV: And if you were there, you would not lower interest rates?

Raghuram Rajan: Oh, how many ways are you going to get me to commit?

NDTV: Well, I think I have more than the answer actually. There is a worry about the slippage in the fiscal deficit and the current account deficit and you are saying that needs also to be handled fast?

Raghuram Rajan: The current account deficit is going to widen from where it was because of oil prices, there is nothing very much you can do. You can try and improve the climate for exports, given the global environment, which is very healthy, by fixing any supply issues, we have heard some of the issues about the GST and so with the exporters but whatever they are, let's try and fix those.

NDTV: Those things need to be fixed fast because these things are opportunities that come once in a while.

Raghuram Rajan: They are opportunities and also India's sort of image outside, if you don't fix these fast, could get damaged because there are sort of ripple effects from having a bad performance in a quarter or two.

NDTV: I hate to say but when the oil prices were high I heard that's our biggest problem, when they came down to half, nobody said "wow, great. India is now going to hit 12% growth rate". We just didn't seem to take full advantage of it. Now it's going back a little bit, now you're saying "oh God. Oil prices are going up". So is it a one way trip? If it goes up, it's terrible, if it goes down, it's not better.

Raghuram Rajan: I think we benefited from it. I won't say we took advantage, we benefited from it but yes, our growth was higher. In the year that the oil price came down and was low...

NDTV: You'll say a primary factor was oil prices, low?

Raghuram Rajan: Was an important factor.

NDTV: Maybe a couple of percent on GDP growth?

Raghuram Rajan: I think the estimate that I have seen from JP Morgan is about that. So it did help us and you know, what comes down sometimes goes up.

NDTV: It's only the other way round isn't it?

Raghuram Rajan: Well, yes.

NDTV: But in this case, in monetary economy, it's the other way; what goes down will come up one day.

Raghuram Rajan: Absolutely.

NDTV: So bottom-line on the inflation point, how would you control inflation in India?

Raghuram Rajan: I think, you know, over time, the issue is get expectations of higher inflation down, which is what, you know, the Central Bank has been doing over time.

NDTV: Much the same as what they are doing right now?

Raghuram Rajan: No, then you are getting me...

NDTV: No, no, totally innocent question.

Raghuram Rajan: All I am saying is we have got the right structure, we've got a Monetary Policy Committee and they understand what their task is, they have to keep inflation between two and six.

NDTV: You were just sounding like the cricket commentators; if India bats well, bowls well and especially fielding, if they field well, we will win the match. So if they do all those things, if they were...

Raghuram Rajan: Look, I am trying to avoid giving prescriptions. I think we have the right structure; they will do what is necessary. I am happy to give other prescriptions but I want to stay off.

NDTV: Why?

Raghuram Rajan: It's a matter of dharma. I sort of think the dharma of a former Governor is really to not interfere in. Because people sort of think that you have some special knowledge, which you don't.

NDTV: Oh yes you do, yes you do...

Raghuram Rajan: Well you have a sound committee; well appointed by the government, let them take the decisions.

NDTV: There is a lot of optimism now, coming to global economy, about the global economy. It's doing very well. Do you share that optimism? Because I remember in 2005, you forecast the 2008 crash, the bubble was going to burst and everybody said "come on". Larry Summers said, you know, "what? He's just lost it"; now, they respect you for that. Are you more worried about the global economy now than you were then, or less worried?

Raghuram Rajan: I am less worried, but I am worried. I am less worried about the banks, we did a lot to fix them post global crisis.

NDTV: Global banks, all over.

Raghuram Rajan: Global banks, yes. They have more capital and so on. However, we didn't sort of have uniform regulation across the system, so some of the risks that were in banks have migrated elsewhere. More importantly...

NDTV: Elsewhere, meaning?

Raghuram Rajan: Into the shadow banking system as they call it, the mutual funds, the pension funds and so on. But I think more dangerous is that all this time we have given monetary policy a pass and said that was not responsible. And to some extent, eight years of very, very low interest rates and very, you know, they're pumping money into the system by buying government bonds. Very easy liquidity is something the system gets addicted to and it gets addicted by building up debt. So it needs yet more liquidity in order to keep that, you know, that debt current. And leverage has built up. In the corporate sector, you know there was a lot of talk about covenant type loans before the previous crisis; they are now 4 or 5 times their size at that time. So there are all kinds of levered positions in the market. When the tide of liquidity flows out, which it is in process of because the Fed has already stopped reinvesting in bonds, ECB will probably stop later this year or slow down QE tremendously and the Bank of Japan is making noises but it will follow. When all those guys stop pumping money into the markets, the markets get much tighter. I mean Mohamed El-Erian has a nice phrase, "yes-but, word". Yes, the global economy, the strong ones are growing really well, it's a good time for India because the global environment is strong and our exports should be doing well, but, there is a lot of financial fragility that may have built up and we won't really know where until...

NDTV: You are saying it's a financial, you haven't used the word bubble, but I think Ruchir Sharma talks about quantity of financial assets is now three times the GDP. It used to be as GDP, now three times. Never happened before in history; an element of bubble in that?

Raghuram Rajan: Well I mean certainly there are some places where we have seen a bubble-like feeling. Bitcoin is one example, here is the, I would say, almost the classic definition of bubble. It has no real use; even the transaction use we seem to talk about seems to be, you know, very costly and slowing down. Obviously, the underlying technology is useful but we have seen this being bid up to near 20,000 levels.

NDTV: And then dropping by...

Raghuram Rajan: And then it's dropped to half. So it is an issue that there are these places where you at least froth...

NDTV: But you are saying even mutual funds and other areas are. That's a bit of a worry for you?

Raghuram Rajan: No. I think there are places that people have congregated on in the market, sort of places where there is yield to be had and of course as, you know, the money sort of flows out, these yields would start topping up quite significantly and therefore will jeopardise the value of those holdings. So I think that's a potential concern. And of course our pension funds, our mutual funds have gone out on the risk spectrum when nothing was really earning that much.

NDTV: So that is a worry. So you are worried but not as much worried as you were in 2005 or there is or there is a kind of...

Raghuram Rajan: I would say the good news is strong growth. The bad news is financial fragility, potentially...

NDTV: There is financial fragility?

Raghuram Rajan: Yes, because of high leverage. And the question is how these two sort of interact. If there is a sense of inflation picking up much more strongly, the Central Banks are forced to withdraw liquidity much faster; that creates more tension in the financial sector.

NDTV: Is it true, I mean as a Monetary economist, if one bubble bursts somewhere, not Bitcoin, it's too remote, that has a multiply effect and everyone gets worried and there is a much bigger; it has an impact on the other aspects of monetary policy?

Raghuram Rajan: It sort of breaks the narrative, in Bob Shiller's words, of you know, everything is going up. You know we talked about going up and going down. Well if everything is going up and suddenly you've something crashing to half its value, so I'll say "what else is bubbly?" So it has that potential.

NDTV: I don't know, this is completely different; not Monetary Politics, but the five biggest companies in the world today are all tech companies. There's Apple, there's Google, there's Amazon and there's Microsoft. Is that a bubble? I mean these five companies are worth 3.5 trillion dollars. Is that a worry?

Raghuram Rajan: I don't know if it's a bubble. I mean some of these companies are also the most profitable in the world and so people are discounting very healthy profits also. I do think that it raises questions about how open, now that these companies are there, the field is for smaller companies to innovate and grow.

NDTV: There is a concentration now.

Raghuram Rajan: Whether it's concentration, whether it's an anti-trust issue and I think we have to be very careful about this, because these pose different anti-trust issues than the older anti-trust issues. These are very efficient companies. These are companies that give you a lot of services for free. Of course they are charging somebody else.

NDTV: These five companies, their value is more than India's GDP.

Raghuram Rajan: Yes. But you know that's...

NDTV: It's comparing apples with oranges.

Raghuram Rajan: Absolutely. But I would say that...

NDTV: Would you say they are over-valued?

Raghuram Rajan: I don't know. I think they are very profitable.

NDTV: Yes, which is unlike the 2000 bubble where nobody was making money and there were...

Raghuram Rajan: There is some backing for this, but also there is also a belief that they will retain this strong a position and the only thing that will upset that is growing fears from the broader public and the demand for regulation.

NDTV: In this top 10 grade companies, most highly valued companies, there are many Chinese companies. Now China took the route of stopping foreigners from coming into, from e-commerce and to all kinds of internet, you know. No WhatsApp, no internet, they have their own version; and they have created Tencents which is worth 500 billion. There is Alibaba, another 400 billion. India has allowed everybody to come in and Amazon is doing well and Uber is doing well and, did China get it right or we got it right or we remember our own import substitution? What should we have done, because it's quite tough for an Indian company to take on these huge giants?

Raghuram Rajan: It is a very, very good question and I don't have a pat response here, "no, no; we should have left it open" or "yes, we should have closed", because one of the things that's different here, from our old style protectionism, is there are significant scale economies in this kind of business and therefore someone who comes in with the ability to bring these scale economies has a little bit of an advantage over somebody starting anew. So our Indian corporations may have a slight, you know, some disadvantage in going up against an Amazon or an Uber and it's worth thinking about it. That said, we still have some Indian comparatives, the OLAs and the Flipkarts and Snapdeal.

NDTV: But they are finding it very tough while in China, Uber sold out to the local Chinese.

Raghuram Rajan: But there is an old saying right? What doesn't kill you make you healthier, but I will say the jury is out on what the right approach is.

NDTV: Because you know you see a 500 billion dollar company and you think "man! China's got that right" by import substitution and non-globalisation which they are trumping.

Raghuram Rajan: No I think it's certainly worth thinking. I also think we will have to spend a fair amount of time thinking about issues of data protection, who owns the data; should the date be locally stored and locally owned rather than stored elsewhere.

NDTV: The biggest search engine in India, the most popular one, that has 60% of the market, is a Chinese search engine.

Raghuram Rajan: Right. So these are issues both from the security perspective. But also, you know, what happens if there is an incident, where do Indian courts have jurisdiction over? Those are issues we will have to confront. So I think, I mean I like the Supreme Court decision on Right to Privacy and I think it is ahead than a number of countries, but we need to think about these issues as we keep...

NDTV: And I keep coming back to you, what you said so correctly, think about it but implement it as well, make sure it happens, because you can say "we want Right to Privacy" but then it slips here, it slips there and... Last bit, little about you personally. You are, honestly, I am not just saying it to your face, the finest RBI Governor India has ever had. Do you miss the job? Did you enjoy it?

Raghuram Rajan: First, disservice to a lot of other Governors. But I enjoyed the job tremendously and I enjoyed the people around me. It's a fantastic group. As an institution, it was one of the few institutions that I actually genuinely say, has stood the test of time without descending into the sort of malaise that some of our other institutions have descended into. Still stalwart people, like any institution, there are some people who do not pull their weight, but by and large, a really strong set of people and very capable. And the young people, in many ways a delight, that from many of India's, sort of, broad spectrum of educational institutions, they come in, given a challenge, they go away for three weeks and come back with something really good.

NDTV: I remember a wonderful thing that you told me; that you get so many suggestions as an RBI Governor and read them and put it aside. What makes you not sleep too well is ''have I missed one really significant". Like year 2005, which so many people missed, is there another young Raghuram Rajan who sent it to you and you said "nutcase".

Raghuram Rajan: Given the volume of mail you get, that's always a possibility and so you have these 30-page closely spaced documents, handwritten, where you're wondering "is this guy a genius or is this a crackpot"? Am I going to be sort of ignoring the new kids and so it's difficult, takes a lot of time.

NDTV: The only positive thing is that you are at least worried about that, not others that just put it aside. But would you have liked a second term?

Raghuram Rajan: Life moves on.

NDTV: And the answer is yes.

Raghuram Rajan: Look, I have said this before, the task was unfinished but I think it's in perfectly good hands and you know, I have other things to do. It wasn't as if I went into retirement.

NDTV: You were offered Rajya Sabha membership. Why did you, you should have just grabbed it, shouldn't you?

Raghuram Rajan: I think my official statement was I have a job and I am doing it, I don't want to.

NDTV: And your unofficial answer? This is the last thing you would ever want.

Raghuram Rajan: Look, I love my job in academia. At the same time, I feel a sense of obligation to India, so I try and keep a foot in both worlds.

NDTV: You know you wrote this wonderful book and like everything with you, diametrically opposite reactions. Everything if you do, if I remember, has a diametrically opposite... The people loved your book, the government or the authorities or the ruling, I wouldn't say party, but ruling elite didn't like your book. Were you a bit shocked at how much people liked it and how much people disliked it or you are used to that?

Raghuram Rajan: I don't spend a lot of time worrying about that. What I thought was important was to just lay out why we did what we did, because in a democracy and explain why each one; and then some people, you know, will say why are you explaining in such detail? And the idea was to say here's what we did and why we did it and with a hope that the underlying rationale would allow support to continue for some of these actions.

NDTV: That was a very complicated answer to a simple question but we will leave it at that.

Raghuram Rajan: I don't worry. In the University of Chicago, when you go to a seminar, you take such a pounding that you stop worrying about what people say.

NDTV: By the way, we've got a demonstration here maybe, in Davos, a demonstration.

Raghuram Rajan: But there are about 10 people there, so. They're allowed, but there are only 10.

NDTV: Yes, you do get a pounding in Chicago. A close friend of mine went to Chicago to do his PhD many years ago and the first thing he was told, everybody was told, "look at the person on your left, on your right, if either of them get through, you are not getting through". And you have to be tough to be in Chicago, it's a wonderful University.

Raghuram Rajan: It's great and the focus on ideas is important.

NDTV: So, if you are offered to be the Finance Minister after the 2019 General Elections, would you take it?

Raghuram Rajan: No, I was told when I was coached by the IMF on how to respond to questions that never answer a hypothetical question. The truth is I am perfectly happy being back in academia. I am working on a book. I am working on an educational institution in India in which we are trying to set up a Liberal Arts University, some very fine people in the South are working on it. So my life is full, I don't need more complications.

NDTV: Depends on the offer, opportunity. Hypothetically, we will leave that. And most importantly the Budget is about to happen, what would you like to see?

Raghuram Rajan: I think I would like to see a continuation of the process the government has been on, which is maintain a reasonable fiscal stance and focus on getting what already has been announced, so many sort of yojnas, projects, let's complete them.

NDTV: Just get them done; and I think there would be enormous benefit to the country. In Chicago, do you sit there sometimes, when you're getting pounded by your students and you can't hear them and you think "Yes, there are some tasks that I left undone" or "my favourite couple of tasks which I was doing at the RBI, which I couldn't complete"?

Raghuram Rajan: No, no. Look...

NDTV: You're so cautious.

Raghuram Rajan: I am just trying to be reflective.

NDTV: Do you reflect on something unfinished?

Raghuram Rajan: There is certainly unfinished stuff but I think the progress is being made on that which is what I am really happy about. That these structures that we put together, people have taken ownership in Reserve Bank, of those structures and moving them forward. So I think to some extent it would have been much more disappointing if we had all worked together on these changes and then you know, you leave and everything drops. The fact that people have continued on cleaning up the banking system, on the Monitory Policy approach, suggests that they have taken ownership and they deserve to do that because it was part of their ideas.

NDTV: Well thank you very much and just end with what I started with, that you make us proud and India misses you. And time to come back.

Raghuram Rajan: Thank you.

NDTV: God bless you, thank you very much indeed.