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Politically difficult to fast-track structural reforms: Raghuram Rajan

The Governor said India is fairly safe from volatile global economy and it has posted 7.5 per cent growth despite two droughts and weak international market.

By: PTI | Bhubaneswar | Published: May 22, 2016 4:41 pm
india economy, india economic growth, raghuram rajan, rbi rajan, india labour market, Business news, india news, rbi inflation, raghuram rajan inflation, latest news RBI Governor Raghuram Rajan

It is ‘politically difficult’ to speed up structural reforms in India, RBI Governor Raghuram Rajan said, even as he stressed on the need for cleansing the banks and checking inflation to ensure faster growth.

Rajan also said labour market reforms can boost growth, but the process may draw opposition.

Delivering a lecture on ‘The Global Economy and India’ here last night, the former Chief Economist of IMF said new rules need to be evolved for international monetary policy and called for the emerging markets like India to “speak up and raise their voice louder” to have a say in setting the global agenda.

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The Governor said India is fairly safe from volatile global economy and it has posted 7.5 per cent growth despite two droughts and weak international market.

“Despite two droughts and weak international market scenario, we are registering about 7.5 per cent growth because of macro level stability,” he said.

While there is a need to ensure macro level stabilisation, the country would have to keep inflation under control and cleanse the banks, he said. “This can strengthen macro level stability,” he said.

In addition to that, maintaining reforms would attract both international and domestic investors and spur activities, Rajan said.

Stating that structural reforms are important for elevating the potential of economy, the RBI Governor said degree of competition and level of participation of different segments of society should be raised in order to bring more and more people into the workforce.

However, it may be difficult politically to speed up structural reforms and while labour market reforms can boost growth, the process may draw opposition, the outspoken Governor said.

Describing a good policy as the first line of defence for the economy, he said in order to ensure safe borrowings, the country should try to opt for long-term borrowings instead of short-term ones.

On the need for intervention in the realm of exchange rate to reduce volatility, Rajan said the country’s foreign exchange reserve has gone up to USD 360 billion, which can also be described as a strong line of defence for Indian economy in the context of adverse global scenario.

“We are now fairly safe against global volatility, provided we continue maintaining this policy,” he said, adding that Indian economy is not as vulnerable now as it was in 2013.

Stating that there may be uncertainties because of the policies of other countries and volatile international market, he said India, which remains largely protected and vigilant, should focus on building a strong policy.

On evolving new rules of the game for international monetary policy, Rajan said emerging markets should try to present their ideas on different issues, like getting more IMF quota, before international fora.

Stating that there should be a more responsible global monetary policy that follows rules of the game, he said a number of countries are now blaming each other over adoption of aggressive policies.

All have domestic mandate as they have to worry about several things like ensuring growth and keeping inflation rate under control, he said.

Referring to “helicopter money”, Rajan said it can always push inflation and maintained that easy money can never provide answer to any problem.

He said contrary to general belief, experiences in some countries show that low interest rates lead to high savings instead of pushing investment.

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  1. Dr. Jagannath
    May 22, 2016 at 2:17 pm
    Further more socially and culturally!
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    1. Shankar Shankar
      May 22, 2016 at 4:58 pm
      If government want public to invest instead of saving, it should first create a base where public get a reasonably good rate of return on their savings, so that they can think of investing surplus funds if any. But what is happening is the savings of public is getting diminished to such an ectent that survival itself becoming impossible, let alone investment. Exceptbrate of interest all costs have increased and senior citizens who were able to live a comfortable life in 2000 is struggling to make both ens meet today because of interest rate coming down and inflation going up.
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      1. S
        S K
        May 22, 2016 at 11:49 am
        A particular global bank focused on Asian markets seems to be deciding the fate of the Indian banking industry in general and PSU banks in particular. It is able to manouvre even simple rules for its own benefit. Do not know why this brazen attempt to macre PSU banks is being tolerated by the government.
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        1. S
          S K
          May 22, 2016 at 11:50 am
          If some enthusiastic financial reporter at Indian Express is interested, please contact me. 9662835119.
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          1. S
            S K
            May 22, 2016 at 11:46 am
            RBI Gov clearly wants to be PM. No problem. Let him give up his job and join politics. Let the people decide. Until he is RBI Gov, he should walk on the allotted track.
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