India's central bank chief Raghuram Rajan targets Australian firms

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India's central bank governor, Raghuram Rajan, says recent economic events in China are troubling but he insists India's growth prospects remain strong in the face of financial market turmoil.

Reserve Bank of India governor Raghuram Rajan says the country's growth rate must be attractive.
Reserve Bank of India governor Raghuram Rajan says the country's growth rate must be attractive.  Photo: Pal Pillai

In a wide ranging interview with Fairfax Media, Dr Rajan predicted India's contribution to global growth would get "bigger and bigger from here" and that there was a "lot of promise" for Australian firms in India's fast growing economy.

Dr Rajan sent a clear message to investors and businesses: get in now because India will be the place to be in the next decade. 

"If anybody was to look towards a big source of demand in future it would be hard for them to miss India," he said.

"If our implementation matches our promise I have no doubt that in the next five or 10  years this will be the place to be – so good to get in early."

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Australian services industry opportunity

Dr Rajan suggested that Australian firms consider trade and investment opportunities in India's burgeoning services sector including finance, health care and education.

"I would argue that because of the common language – different accents but common language – I think there could be a lot going on there," he said.

Some of Australia's biggest companies, including ANZ and Telstra, have made promising investments in India in recent decades only to retreat at great cost.

When asked about this Dr Rajan said: "I'm not sure it's anybody's fault – there have been periods of strong growth and there have been periods where people have thrown in the towel and said it is impossible doing business."

But he said many foreign companies which stayed the course had found India to be a "very lucrative market".

India has emerged as the world's fastest growing major economy and is forecast to grow by between 7 and 7.5 per cent this financial year.

There have been periods where people have thrown in the towel and said it is impossible doing business.

Raghuram Rajan

Productivity Commission praised

Dr Rajan, who was chief economist at the International Monetary Fund between 2003 and 2006, praised the role of Australia's Productivity Commission in developing economic policy.

"Clearly there is a lot to learn about how you have used the intellectual inputs, the economic inputs, from that kind of organisation," he said.

"There are so many places two large economies can learn from each other."

This month Dr Rajan was named central banker of the year by The Banker magazine, owned by the Financial Times Group, because of his role in promoting growth and relative economic stability in India.

Dr Rajan said India needed to improve its infrastructure, human capital (the knowledge base of the population), regulations and access to finance.

"The gap in India has always been between the promise and the execution," he said.

"I think we are in the process of reducing that gap but we've got to keep at it."

China 'troubling' but exposure limited

He described recent economic developments in China as "troubling" but said India was less exposed to the Chinese economy than many nations, especially commodity exporters.

India has also benefited greatly from the fall in commodity prices triggered by lower Chinese demand.

Since joining India's central bank in 2013 Dr Rajan has been a strong advocate for developing countries to have a bigger say in global economic governance, including at the IMF. 

There is speculation he might eventually become the fund's first Asian leader.

But when asked by Fairfax if he would consider a leadership role at the IMF in future, he said: "I haven't even thought about that. The problems here and the immediacy of dealing with them is so much more interesting at this point."