Replacing RBI governor Raghuram Rajan may lead to a sovereign rating downgrade: HDFC Chairman Deepak Parekh

MUMBAI: Any move to replace RBI governor Raghuram Rajan could lead to a sovereign rating downgrade, HDFC Chairman Deepak Parekh has warned. “The government, whichever it is, if he ( finance minister) changes the governor, he will get a bad name. There is a possibility of a downgrade if you change the governor… that you are politicising the position,” said Parekh, an elder statesman of Indian finance whose advice is often sought by governments and businesses.

In an exclusive interview with ET, Parekh called upon the next government to embark on a “credible” fiscal consolidation programme and appeared to question some numbers in the budget presented by Finance Minister P Chidambaram. “The numbers have to be credible. Rs 1.10 lakh crore of subsidies have been deferred to current year,” he said.

“If you ask the oil marketing companies, the government owes them Rs 35,000 crore. Ferilizer subsidy is Rs 35,000 crore and food Rs 40,000 crore. These are overdue,” Parekh said. He dismissed fears that a restatement of fiscal deficit numbers could lead to a downgrade.

“If we get the right fiscal deficit numbers and even if it is 5.6 per cent ..if there is a road map of how to bring it down, I don’t think there is a chance of a downgrade. The rating agency will take it in the right spirit. We have to restore credibility of the fiscal numbers,” he said.

Concerns about Rajan’s removal had risen after BJP leaders, including party treasurer Piyush Goyal and senior BJP leader Arun Jaitley, had expressed disquiet over his policy of keeping interest rates high to curb inflation, leading to speculation the governor may be replaced. But Goyal has since changed his stance to indicate Rajan will continue.

Former finance minister Yashwant Sinha of BJP has also praised Rajan’s achievements since taking charge. In the eight months he has been in office, Rajan has largely earned plaudits for the manner in which he tacked a mini-crisis stemming from a falling rupee last August. He has also been a major voice in the global debate over the fallout of the Fed’s quantitative easing programme on emerging markets.

Referring to the problems faced by BP, Reliance Industries’ partner in the troubled KG-D6 block, Parekh urged the new government to restore pricing freedom for oil and gas producers and to bring in more competition. “BP has come and see the problems they are facing.

Mind you, if BP had invested this money in Qatar, and we bought LNG from there, they would have recovered the money…because we are paying $13 or $14 to import LNG,” Parekh said, referring to the problems faced by the RIL-BP combine in obtaining what they consider to be a renumerative price for gas produced from the block.

The new government needs to raise revenues and one way to do this would be by way of a massive privatisation programme, including divesting the state’s stake in ITC, Axis Bank and L&T.

Further, the government can only meet Basel III norms (which stipulate strict capital adequacy norms), estimated at about Rs 1 lakh crore per year, by bringing down the government’s stake in public sector banks to 26 per cent. The alternative is to issue nonvoting or golden shares if it wants to retain its holding at 51 per cent.