Raghuram Rajan, whose tenure as RBI governor ended on September 4, has issued fresh warnings about the threats that Indian economy faces. In an interview to New York Times, Rajan mentioned that “low interest rates globally could distort markets and it would be difficult to abandon.”
Rajan, who stepped down after intense criticism from the ruling party leaders, said that low interest rates should not be a substitute for “other instruments of policy” and “various kinds of reforms” that are needed to encourage growth. He said that though countries around the world have kept interest rates low as a way to encourage growth, they could be “trapped” by fear of slow growth when they raise the rates eventually.
“Often when monetary policy is really easy, it becomes the residual policy of choice,” he said.
Talking about his achievement, Rajan said his monetary policy had helped bring India’s rate of inflation down. “I think we’ve done exactly what was needed,” he said adding that the RBI should continue to prioritize low inflation.
While endorsing the government’s Make in India campaign, Rajan also mentioned that the problem of unemployment cannot be solved by exclusively focusing on the manufacturing sector alone. “If India improves infrastructure and reduces government regulations, manufacturing might take off in a big way, but it could also be services. It could be value-added agriculture also,” said Rajan.
On being asked if his tight monetary policy made the government not to continue with him, Rajan said, “I don’t think it’s fair to say that it’s because of tight policy that the government wanted to move on.” He also mentioned that his Urjit Patel played an important role in setting the country’s tough inflation targets.
Rajan, who is credited with predicting the global economic crisis of 2008 and has decided to return to academia, said he would be back with his public speeches in India after a break, while making a strong pitch for retaining RBI’s autonomy and allowing it to say “no” to the government whenever required.
While he is expected to resume his job as Professor of Finance at Chicago University, from where he has been on leave, those in the know say that he may also take up some other assignments in due course, including in academics.