As the Modi government completes one year in office this month, RBI Governor Raghuram Rajan, who oversees nation’s monetary policies, has said that the administration had taken steps to create an environment for investment and is “sensitive” to concerns of investors, in the face of “probably unrealistic” expectations.

“This government came in with tremendous expectations and I think the kind of expectations were probably unrealistic for any government,” Rajan said in New York on Tuesday.

He was speaking at the Economic Club of New York. Rajan said the government has “taken steps to create the environment for investment, which I think is important.” The government is “sensitive” to the concerns of investors and is looking into addressing economic issues, he said.

Rajan said there are several areas where the government has taken more “serious and significant” advances to improve investor confidence and propel growth.

 On the issue of subsidies, he said petrol and diesel subsidies have gone. “Going forward these subsidies will be transferred directly into bank accounts,” he said, adding that already the cooking gas subsidy is being transferred directly to bank accounts.

Rajan said there is a “broad consensus” for the Goods and Services Tax (GST) and while he had hoped for the GST Bill to have passed in the just concluded session of Parliament, he feels there is “enough momentum” that “it will be done well in time and roll out by March 31 or April 1 next year.”

“In fact (the government) is going ahead with the apparatus to ensure that it is actually done,” Rajan said.

Another key legislation that the government is focusing on is the Land Acquisition Bill, which is important from the perspective of certain public works, Rajan said.

He said that since different states have their own land acquisition bills, some commentators have suggested the possibility that the states should decide for themselves as to how to implement their respective land acquisition provisions.

There are tremendous plans for investment, particularly in the Mumbai-Delhi industrial corridor and freight corridors, the RBI Governor said.

“My sense is that things are happening,” he said.

He said inflation “has come down tremendously in India” and rupee has basically stayed relatively flat since the beginning of the year.”

“…if you look at rupee’s volatility relative to other currencies, you’d have to argue that the rupee has been one of the most stable currencies (against) the dollar,” Rajan said. “It’s been much stronger than other currencies,” he said.

With the Current Account Deficit also projected to come down from more than four per cent to 1.5 per cent this year, Rajan said “the big deficit numbers have come down” and the focus is on growth.

He, however, said while investment intention and investment is picking up, the pace can be faster. Rajan noted that the problem to some extent lies in the week balance sheet of banks and there is no supply problem as banks are willing to lend.

Emerging economies like India have to work towards reducing vulnerabilities in their economies, he said.

Lower interest rates and tax incentives can boost investments, he said, but consumer demand holds the key for economic growth.

"Emerging economies have to work to reduce vulnerabilities in their economies, to get to the point where, like Australia or Canada, they can allow exchange rate flexibility to do much of the adjustment for them to capital inflows," said Rajan.

However, it takes time to develop the required institutions. In the meantime, the difficulty for emerging markets in absorbing large amounts of capital quickly and in a stable way should be seen as a constraint, much like the zero lower bound, rather than something that can be altered quickly, said the RBI governor. Due to this, he said, even while resisting the temptation of absorbing flows, emerging markets will look for safety nets.

"We also need better international safety nets. And each one of us has to work hard in our own countries to develop a consensus for free trade, open markets, and responsible global citizenry. If we can achieve all this even as the recent economic events make us more parochial and inward-looking, we will truly have set the stage for the strong sustainable growth we all desperately need," Rajan said.

Rajan also nudged international organisations like the International Monetary Fund to re-examine the "rules of the game" for a responsible policy. "No matter what a central bank's domestic mandate, international responsibilities should not be ignored. The IMF should analyse each new unconventional monetary policy (including sustained unidirectional exchange rate intervention), and based on their effects and the agreed rules of the game, declare them in- or out-of-bound," he added.