KJ Udeshi joined Reserve Bank of India (RBI) in 1965 and rose from the ranks to be appointed as Bank’s Deputy Governor. Before her appointment as deputy governor, she had stints in almost all crucial departments of the country’s central bank. She has also been a co-chairperson on sub-group on banking and finance, Indo-Russian Inter-governmental commission for trade, economic, scientific, technological and cultural co-operation. But her expertise, insiders say, lies in exchange control — a critical department with which she has a long association. India is possibly the only country which has not rolled back any capital account convertibility measure. So far the transition path has been quite steady. And Udeshi, with her colleagues, can certainly take the credit for this. In an exclusive interview with Jayanta Sarkar & Surender Panthri of Diplomatist, the Bank’s first lady Dy. Governor speaks on the country’s current macro economic outlook and forex regime. Excerpts:

"In the context of the current global slowdown in the economic activity and moderation in domestic investment demand, creating a monetary policy environment that is conducive for attaining the potential growth path of the economy has been a key challenge for the RBI"

Diplomatist: Does being the first women Deputy Governor hold any special significance for you?

KJU: Being the Deputy Governor is definitely a high point in a central banker’s career. I have been privileged enough to have the good fortune of having a very supportive family and working for an organisation which values integrity and performance.

Diplomatist: What is the source of your inspiration as an individual?

KJU: I see any issue coming before me as a challenge and therefore as an inspiration.

Diplomatist: Do you feel that your being a woman has ever given rise to a prejudice amongst your colleagues or otherwise that may have seriously hindered your progress?

KJU: I have never faced prejudices because I am a woman. Being a woman has also never hampered my progress. In fact in the public sector, merit plays a much more important role in career progression than gender.

Diplomatist: To what do you attribute the growth of opportunities for Indian women in all walks of life?

KJU: Indian women are increasingly availing of the opportunities of an independent career thanks to increasing awareness among family members as also the inculcation of an enquiring mind and an independent spirit in the formative years.

Diplomatist: You have been associated with RBI for a very long time. Is there any special reason for it?

KJU: RBI has been and is such a wonderful and august institution that it is a privilege to be associated with it.

Diplomatist: Considering the rapid transformation of the World economy and that of India, do you foresee any changes in the role of RBI in the coming years?

KJU: While modern day central banks generally conduct policies in a forward-looking manner, they also respond dynamically to the developments as and when they unfold, and accordingly fine tune the policy framework to make it compatible with the changing requirements. Like other central banks the RBI has also changed over time, and in fact it has brought about a major transformation in the macroeconomic and financial environment in India by introducing reforms spanning important areas like the exchange rate, operating procedure of monetary policy, payments and settlement systems, regulation and supervision of financial systems, deepening and widening of markets, and liberalisation of exchange controls. With greater market orientation of the Indian economy, accountability and credibility of the RBI will assume greater significance over time. There will be much less role for controls and much greater role for surveillance of the economy and the financial system. Development of markets while preventing major market failures will be a key challenge for the RBI. It is the ability to conduct policies in a forward looking manner that would determine its performance on macroeconomic stabilization and crisis prevention. Thus, while the role of the RBI in the sphere of macroeconomic and financial sector management would continue to be the same in terms of the objectives, the instruments and the operating procedures to attain the relevant goals would change dynamically as the policy challenges themselves become much more complex over time.

Diplomatist: How do you find India’s macroeconomic parameters? Are they really encouraging for attracting foreign investment?

KJU: India’s current macroeconomic environment characterised by low inflation, soft interest rate, stable exchange rate, comfortable foreign exchange reserves, strong external sector as reflected in current account surplus, and high growth in the face of a major global economic slowdown is highly conducive for investment and growth. Foreign investment is driven by both pull and push factors and India’s current macroeconomic environment imparts strength to the known pull factors. Liberal foreign investment policy, no restrictions on FDI related outflows, large and growing domestic market, and the presence of strong future growth potential also make India an attractive destination for foreign direct investment.

Diplomatist: What is the greatest concern of RBI at the moment?

KJU: Non-inflationary growth is the primary goal of RBI and in the context of the current global slowdown in the economic activity and moderation in domestic investment demand, creating a monetary policy environment that is conducive for attaining the potential growth path of the economy has been a key challenge for the RBI. Ensuring financial stability has also been an important goal of the RBI and as has been learnt from the lessons of past crises in several emerging market economies, sources of financial instability are not static and at times could be quite complex.

Diplomatist: How liberal is our exchange control regime vis-ŕ-vis the Asian Giants and the West?

KJU: There is no uniform ideal approach to liberalisation of restrictions on external transactions that could be recommended as appropriate for every country at every point of time and, therefore, the approaches to liberalisation pursued by different countries could differ in content, speed, and timing in terms of attainment of specific preconditions. If one refrains from one to one comparison of specific transactions liberalised across countries, the overall regime in India would appear to be largely liberalised. While India’s current account transactions were made fully convertible by August 1994, the remaining restrictions on capital transactions are not very relevant from the standpoint of attaining the benefits of an open capital account.

Diplomatist: Strengthening of rupee against dollar, is it good or bad for the economy?

KJU: In a market determined exchange rate regime, market forces and market expectations determine the strength or weakness of the exchange rate at any point of time. RBI’s exchange rate policy being primarily to contain volatility, its intervention actions have been guided by the need to prevent disorderly appreciation rather than to completely prevent appreciation. Recent strengthening of the rupee against the US dollar has some beneficial impact on the inflation scenario through lower import prices. At the same time, appreciation of the rupee against the US dollar may not weaken the external competitiveness of Indian exports unless the real effective exchange rate also appreciates correspondingly. Due to notable cross-currency movements in the recent period – particularly large depreciation of the US dollar vis-ŕ-vis the Euro – the real effective exchange rate of the rupee continues to show modest depreciation. An export growth of 19.2 percent recorded in 2002-03 along with a surplus in the current account suggest that nominal appreciation of the rupee against the US dollar has not been detrimental to the interest of the external sector of India.

Diplomatist: When can we expect full capital account convertibility? What is the road map towards achieving it?

KJU: In India, capital account convertibility is seen as a process which does not have any pre-announced time path. The process has evolved so far in response to both domestic and international developments and the objective is to make available foreign exchange for all legitimate and productive purposes.

Diplomatist: Where do you see Indian Economy in 2020, in terms of economic growth?

KJU: I am extremely bullish on India and will not settle for any other position for our country other than being a "param" force.