raghuram rajan : financial sector reforms talk by dr raghuram rajan, governor of the reserve bank of india, at the delhi economics conclave 2013, delhi, 11 december 2013. * * * the economy is stabilizing, but there is no room for complacency. some part of improvement in the cad has happened due to suppressing gold imports. not all the measures to reduce fiscal deficit are of high quality. we have considerable work to do still. at the same time the country faces elections next year. a stable government post elections, while likely, cannot be taken for granted. this implies that all parties have to work together today to ensure that any government that emerges post - election has the time to come to terms with the challenges of managing the indian economy. otherwise, markets and rating agencies may not be willing to cut the new government any slack. more generally, it would be overly complacent and possibly dangerous for parties to postpone necessary legislation with the idea that they will pass bills post - election. postelection politics may become even more challenging, whoever assumes power. similarly, any slowdown in putting large stalled projects back on track before the elections or any fiscal slippage, will only amplify the already large challenges the new government will have to face. it will benefit the nation enormously if parliament passes key bills and if the current authorities continue to take actions to improve growth and fiscal health, including raising diesel prices to market levels and eliminating other poorly targeted subsidies. this conclave, however, is about the medium term. looking to the medium term, our measure of success should be the jobs that are created ; created not by giving government subsidies or protections to labour - intensive industries or sectors but by developing a facilitating, competitive, environment that will encourage efficiency and creativity. the job agenda requires a disciplined focus on 4 issues : 1 ) we need to improve the quality of our infrastructure, especially the logistical support and power that industry and services need. grand plans are on the anvil, such as the delhi - mumbai industrial corridor. we need to complete such projects on time, and within budget. the success of the new delhi metro suggests that timeliness and cost control are not foreign to the indian psyche. 2 ) our youth need education and training for the jobs that will be created. some of this will be higher degrees, not just computer science but also design or civil engineering. some of it will be appropriate vocational education that teaches them

rules to match american tightening ] to raise their rates. tighter credit then contributed to the beginning of a recession that was picked up in the mixed economic indicators of early august and september. these dispelled hopes that earnings would continue to grow at a rapid rate. as the economy faltered, wiser investors began leaving the market. when selling picked up speed, margin calls and delayed information from the ticker ensured a dramatic panic. ” white goes on to call the fed ’ s policies during this period “ inappropriate. ” he wrote, “ instead of allowing the stock market bubble to run its course, the federal reserve ’ s tighter monetary policy pushed the economy further into recession, rendering it more vulnerable to the shock that came when the bubble finally burst. ” new york fed governor harrison and other participants argued after the fact that the problem with their policy was not that they tried to burst the stock - market bubble but that their efforts were too little and too late. this attempt to defend the fed ’ s policies of the latter 1920s does not hold up. there is little credible evidence of a bubble in the u. s. stock market before march 1928 ( galbraith, 1954 ; white, 1990 ) ; yet, in part because of the workings of the gold standard, u. s. monetary policy had already turned exceptionally tight by late 1927 ( hamilton, 1987 ). tighter policy earlier would have brought the depression on all the more quickly and sharply ( see eichengreen, 1992, p. 214, for further discussion ). the federal reserve went on to make a number of serious additional mistakes that deepened and extended the great depression of the 1930s. besides trying to pop the stock market bubble, the fed made little or no effort to protect the banking system from depositor runs and panics. most seriously, it permitted a severe deflation in the price level, which drove real interest rates sky - high and greatly increased the pressure on debtors. a small compensation for the enormous tragedy of the great depression is that we learned some valuable lessons about central banking. it would be a shame if those lessons were to be forgotten. conclusion understandably, as a society, we would like to find ways to mitigate the potential instabilities associated with asset - price booms and busts. monetary policy is not a useful tool for achieving this objective, however. even putting aside the great difficulty of identifying bubbles in asset prices, monetary policy cannot be directed finely enough to guide asset prices without risking severe collateral