Have no problems with Sebi's decisions: Bimal Jalan

Speaking exclusively to CNBC-TV18, ex-RBI governor Bimal Jalan said he has no problems with Sebi overturning most of his committee recommendations. “Sebi has made the right decision by addressing the conflict of interest issues,” he said. 

Below is the edited transcript of the interview with CNBC-TV18's Latha Venkatesh and Reema Tendulkar. Also watch the accompanying video.

Q: The bond market yields are already shooting up to about 8.8% for the 10 year, do you think that the Reserve Bank of India (RBI) has enough aces up its sleeve to go through such a huge borrowing programme Rs 5.7 lakh crore safely and smoothly in the markets?

A: Of course there is no alternative but to borrow that amount to finance the fiscal deficit , so we have to do the best we can. There is a liquidity issue, the RBI has already taken some move and I am sure they would do what is good for our country. The financial deficit is high and we know that and that’s not good for our country. But how to resolve that issue in terms of financing that would certainly be done by the Reserve Bank of India.

Q: There is still a lot of understated inflation, as we have not raised fuel prices for a longish period, its only now that we are coming around raising power tariffs - do you think that given this the RBI has enough elbow room to go on with open market operations (OMO) and cash reserve ration (CRR), both these would they not have inflation expectation implications?

A: I don’t want to comment on the RBI. But let me tell you that all of us are concerned about the prices and if the government doesn’t raise prices of fuel inline with the costs, and the subsidy increases on that account to a phenomenal level then we have to face the problem. There are no monetary tools which can adequately handle it without affecting growth and without causing or without fuelling the interest rate cycle. So this is a very difficult situation and the answer lies in taking tough decisions on subsidy issues, on that I have no doubt at all.

Q: The other big macro economic problem has been the current account deficit, at 4.3% for the third quarter alone and 4% if you took the nine months. In your time, you have seen a lot of hiccups on the external front the Long-Term Capital Management (LTCM) collapse came at that time, the Asian crisis when you took charge, as well I guess US sanctions because of the Pokharan blasts. Even then we didn’t go to 4.3%. Is this a number we should be terrified about?

A: Of course, there is no doubt about it. It’s one of the highest current account deficits that we have had. We have to resolve this particular issue and how to do it is something that the government has to take a look at. As to what can be done to prevent this kind of current account deficit. We can’t afford to have this kind of current account deficit. There is also a lot of uncertainty about capital account because of policy variations and policy reversals and policy imbroglio at the moment and capital markets are also extremely nervous about all this.

I hope that soon we will see these particular issues being resolved at the policy area first and second, to see what more we can do to reduce our current account deficit. Unless we take these measures, India is in trouble that there is no doubt.

Q: In your time you had to go even to the extent of announcing those Millennium India Bonds and Resurgent India Bonds. It was an extreme situation. Would those kinds of policies be resorted to by the Reserve Bank? What really is the array of instruments available for the government? After all we have to get back to the 90’s psyche when dollar becomes a scarce resource unlike the 2000 when it seemed like not that scarce resource?

A: It is very kind of you to refer to the issues that we faced and we resolved earlier. But would like to clarify one thing, today, our reserves are high, which gives us the room for manoeuvre as it were. In my time reserves were only about USD 20 billion and there was tremendous pressure on the exchange rates and so on but today we have the room. But we must take action quickly and anticipate reaction.

You don’t require India Development Bond kind of special measures at this particular point of time. We had taken some of these measures like Resurgent India Bond and Development Bond at that particular point of time in order to give confidence to the market that we can intervene as and when we like in order to stabilize our exchange rate and stop free fall, which was the sort of prediction of most economists that India can’t hold itself where it is. So this situation is very different but what I want to assure you is that if a decision is taken, if we resolve to tackle the issue, we have the means and the resources to be able to do it.