For Chakravarthi Rangarajan, the new assignment as the Governor of Andhra Pradesh is going to be totally different experience. As the Governor of the Reserve Bank of India (RBI), Rangarajan has put an indelible mark on Indian economy by building up foreign exchange reserves, bringing down the inflation rate, cleaning up banks' balance sheets, managing monetary policies and what not.

The professor-turned-central banker-turned-state governor is optimistic about his new assignment as well. GEORGE MATHEW and DEV CHATTERJEE spoke to Rangarajan about a host of issues ranging from economic growth, fiscal deficit, rupee value and full convertibility of the rupee on capital account and on his new assignment.

Excerpts:

Where do you think the rupee value is heading? Considering the turmoil in South-east Asian region, do you think full convertibility will be delayed?

The rupee was undergoing an adjustment in the last few days. The adjustment that has already taken place in the value of the rupee is adequate in view of the fundamentals. The RBI has been ensuring that there are orderly conditions in the market. We are monitoring the rupee and we will not let it fall. Moreover, the depreciation of the rupee is not linked to the currency turmoil in the South-east Asian regions.

This (the rupee adjustment) will not have any direct impact on the full convertibility plan. Anyway, we're not rushing for full convertibility. The panel has suggested a three-year time-frame to achieve convertibility. There are several factors to be considered before achieving convertibility. The international conditiuons in the coming years will play an important role. Also the economy should be managed in such a way that it ensures domestic stability.

Even though inflation rate has come down, money supply has gone up. Is it because of measures initiated to bring down interest rates? Will inflation pick up as a result of this?

The rise in money supply is only a temporary phenomenon. It was witnessed only for a fortnight. The money supply for the year is expected to be within the target of 15-15.5 per cent set for the year. One major achievement in the monetary management was the price stability. If inflationary expectations continue at a lower level, inflation rate will also remain low. Within this framework, there is considerable scope for expansion of credit which will again be consistent with the rate of growth in the industrial sector. I do not think money supply will go beyond the targeted range.

We've taken steps to increase credit availability. Interest rates have also fallen significantly. Credit growth will also pick up. Unless it picks up strongly I don't see interest rates moving up.

Do you think the government will succeed in reining in fiscal deficit?

The fiscal deficit would be around the targeted level of five per cent of the GDP. Considering the expenditure position of the government in view of the pay scale recommendations... the need for 4.5 per cent fiscal deficit is essential. I feel the economy is heading for a 6 per cent growth. Though the growth in agriculture has been moderate and industrial slowdown is something that needs to be addressed.

If you want a growth rate of seven per cent, it is important that the industry should show a growth of 8-9 per cent. The monetary policy underwent a significant change in the context of the greater emphasis on fiscal stabilisation and cutting the fiscal deficit. I think in the second-half economy will pick up, as according to our statistics industrial growth has already started picking up since September this year.

Moreover, steps taken in the last Budget willstart showing results by next year. We think that the tax net has been widened and revenues will increase.

What has been your major achievements as the RBI Governor in the last five years?

The monetary policy has acquired importance and a definite character in the last few years. Besides, there is the satisfaction of having provided an orientation to the monetary policy. We've been able to abolish the system monetisation through issuance of ad hoc treasury bills. This has been a significant achievement which will go a long way in stabilising the monetary management. I think the moderation in the inflation rates that we have seen in recent times is an indication of the success of the policy that we have been pursuing. The second area in which we had tried to give a new direction has been the financial sector reforms.

The central banker has an important job of balancing the money supply growth to support the credit requirement and at the same time it should not lead to inflation. Continual balance of this was the most difficult task faced by me.

What do you think about your successor Bimal Jalan?

Jalan is a distinguished economist who has dealt with financial matters. He was a special secretary in charge of banking. He was also the finance secretary and economic advisor. He comes with the right background. There will be continuity of policy and policy will also respond to changing circumstances.

nHow do you look at your new assignment as the Governor of AP? To be frank, I was not planning for this assignment. I think it is recognition of good work done by the RBI in the last few years. I'm looking forward to my new job as the head of a state. I hope my experience as economist would be put to use.... I'll do my best and, if asked, offer advice to the state on financial matters.

I cannot comment on the financial position of Andhra Pradesh as I have not taken over the new assignment yet.

Copyright © 1997 Indian Express Newspapers (Bombay) Ltd.