raghuram rajan : filtering out the real india text of the leatherbee lecture by dr raghuram rajan, governor of the reserve bank of india, on “ india – opportunities and challenges ahead ”, at harvard business school ( hbs ), boston ( usa ), 15 october 2013. * * * indian cricket fans are manic - depressive in their treatment of their favorite teams. they elevate players to god - like status when their team performs well, ignoring obvious weaknesses ; but when it loses, as any team must, the fall is equally steep and every weakness is dissected. in fact, the team is never as good as fans make it out to be when it wins, nor as bad as it is made out to be when it loses. its weaknesses existed in victory, too, but were overlooked. such bipolar behavior seems to apply to assessments of india ’ s economy as well, with foreign analysts joining indians in similar swings between over - exuberance and selfflagellation. a few years ago, india could do no wrong. commentators talked of “ chindia ”, elevating india ’ s performance to that of its northern neighbor. today, india can do no right. india does have its problems. annual gdp growth slowed significantly in the last quarter to 4. 4 %, inflation is high, and the current - account and budget deficits last year were too large. every commentator today highlights india ’ s poor infrastructure, excessive regulation, small manufacturing sector, and a workforce with inadequate education and skills. these are indeed deficiencies, and they must be fixed if india is to grow strongly and stably. but the same deficiencies existed when india was growing fast. to understand what needs to be done in the short run, we must understand what dampened the indian success story. in part, india ’ s slowdown paradoxically reflects the substantial fiscal and monetary stimulus that its policymakers, like those in all major emerging markets, injected into its economy in the aftermath of the 2008 financial crisis. the resulting growth spurt led to inflation, especially because the world did not slide into a second great depression, as was originally feared. so monetary policy has had to be tight, with high interest rates contributing to slowing investment and consumption. moreover, india ’ s institutions for acquiring land, allocating natural resources, and granting clearances were overwhelmed during the period of strong growth. strong growth increased the scarcity and value of resources such as land

bud when people speak up and senior management responds appropriately. therefore, bank leaders ought to recognize and reward those who speak up. actions speak louder than words in shaping culture. establishing appropriate incentives and fostering an environment in which people feel they can speak up would go a long way toward bolstering bank culture. i am gratified that many bank leaders and boards of directors are working hard to improve their firms ’ cultures, and i very much appreciate the g30 ’ s efforts in this area. i think most leaders recognize that good culture is fully consistent with strong financial performance, and that it helps enable banks to attract the talent needed to sustain such performance. yet, we could make greater progress more quickly if this effort were coordinated across the industry. i think bank leaders could benefit from sharing best practices and participating in surveys that would allow them to benchmark their strengths and weaknesses versus others on an ongoing basis. building a financial system that is more resilient and robust, having a bank resolution regime that credibly ends “ too big to fail, ” and building strong cultures that restore the trustworthiness of the financial industry are all goals we must continue to pursue. without success on all three fronts, i don ’ t think we can say that we have fully addressed the problems made evident by the financial crisis. thank you for your kind attention. 3 / 3 bis central bankers'speeches