Politically Difficult To Fast-track Structural Reforms, Says RBI Governor Raghuram Rajan
The RBI chief said that it may be difficult politically to speed up structural reforms and while labour market reforms can boost growth, the process may draw opposition
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It is 'politically difficult' to speed up structural reforms in India, RBI Governor Raghuram Rajan has said, even as he stressed on a need for cleansing the banks and checking inflation to ensure faster GDP 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" in Bhubaneswar, 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.
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,"
While there is a need to ensure further growth of macro level stabilisation, the country would have to keep the inflation under control and cleanse the banks, he said. "This can strengthen macro level stability," he said.
Coupled with macro level stability, 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 going for 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 360 billion dollars, 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," the RBI Governor said adding that Indian economy is not as vulnerable at present 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 like India need to speak up and raise their voice louder in order to have a say in international agenda setting.
Emerging markets should try to present their ideas on different issues like getting more IMF quota before international fora, he said adding such countries should start talking about the impact of the policies of industrialised countries also.
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.
Stating that downturns have clinging effect, he said productivity growth remains low because old firms continue to stay in the middle though there is need for new ones with advanced technologies to enter the business.
He said contrary to general belief, experiences in some countries show that low interest rates record high savings instead of pushing investment.