‘India has to be faster in blockchain, Industry 4.0’

India has to be faster in areas like blockchain and Industry 4.0 than the current pace, said Amitabh Rajan, Chairman of the Reserve Bank of India Services Board, at the BFSI Leadership Summit, organised by YourStory and EnterpriseStory on July 16.

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Rajan heads the central bank’s designated arm that conducts examinations and interviews for recruitments at the Reserve Bank of India (RBI).

He alluded to the crypto-currency case that came up before the Supreme Court of India in March 2020. The three-judge bench worked hard to understand the concept, and lifted the 2018 RBI ban on crypto exchanges and startups. “But in a country, fiscal and monetary have to ultimately be policy decisions,” Rajan asserted.

In the aftermath of the 2008-09 global financial crisis, many of the 20th century assumptions around market—that it is free, creative, can run and reform on its own, and that governments should not interfere at all—stand invalidated, he noted.

“We talk of regulations, and one of the lessons learnt after 2008 is that the world has to be better regulated,” he said.

Rajan also cited the Financial Action Task Force (FATF), the global money laundering and terrorist financing watchdog, and its reports on blockchains and virtual assets, as a guide for nations to gauge the problems and prospects of regulations. “Now, the countries have to pick them, and work with a sense of urgency,” he added. “The sooner it happens, the better it will be.”

Productivity of enterprises is vital

The RBI Services Board Chairman said India’s banking, financial services, and insurance industry also stands to benefit immensely from the fourth industrial revolution, or Industry 4.0.

As developed countries are intensely recasting economies around Industry 4.0, India’s approach should be to imbibe, innovate, and work with a sense of urgency. “If we miss the bus, we will not just be lagging behind, but the entire edifice will be in difficulty.” he warned. “The fourth industrial revolution has not only developed, but is growing in a geometric progression.”

This demands the entire management system as well as government policy to get adjusted to the new normal. “That thinking process is still going on, and could go on forever.”

Rajan invoked American economist William Jack Baumol, whose article ‘Entrepreneurship: Productive, Unproductive, and Destructive’ was published in the Journal of Political Economy in 1990.

The title of Baumol’s article is relevant to India in today’s setting, he said. “Now, recall the whole scenario of Indian enterprises, where a lot of good is coming, but there is also a lot that is not very productive,” he said.

The quality of enterprises has to contribute to sustainable development of the country in technology and finance, he added. “It is important to highlight that the India of 2021 is not the India of 2008.”

As far as technology and finance are concerned, the 21st century started in 2008—not in 2000-01, Rajan said. It was an epistemic year, in which the old was more or less over—and the new was born.

“The global financial crisis surfaced, spread wide, deepened, with several consequences. But a situation was created for innovations in management and finance to take place,” Amitabh Rajan, Chairman of the RBI Services Board.

Learning from global economies

The RBI Services Board Chairman weighed in on how the United States of America (US), the European Union (EU), and the United Kingdom (UK) are solving their problems. The important learning is that regulations have to be strengthened. “They can be strengthened through reforms in the working of the agency system,” Rajan said.

The state is the biggest controller, but it cannot carry out the expert functions through proper market interventions. “There has to be a regulatory approach that will take care of the market, which will shape and allow the market to grow while also seeing the wider public interests,” Rajan explained.

For the BFSI industry, the public choice theory from new institutional economics (NIE) is vital, he said. “It is sufficient to say that the autonomy function in the boards of institutions—whether regulators, governments, or even corporates—is extremely important. 

He reiterated that India has a long-term fiscal policy, budget management, and the fiscal responsibility act. “The latter is very well drafted,” Rajan said, adding that a lot still needs to be done in this direction.

“If the fiscal policies are not pro-people and not flexible, the entire set of approaches will become anti-people. We have to maintain public interest as a priority amidst any type of pressure, but still give autonomy to financial institutions to frame policies,” Rajan emphasised.

Researchers in the EU have pointed out that there is a need to look into the laws of fiscal responsibility, he said, citing lessons from three countries where financial advisory councils (FAC) are operational.

While Germany established the FAC as early as 1961, the UK focuses strongly on budget management. “They not only advise, but monitor publicly,” Rajan noted. And, France is the third country, which took lessons from Germany and the UK to make fiscal policy easier for the monetary policy framework. 

Even in India, there has to be an increased harmony between fiscal and monetary policies that can work synergistically and take a stance that is thoughtful, and with academic and professional depth, said Rajan at the BFSI Leadership Summit on June 16.

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