India Central Bank Chief Warns against Growing too Fast

Mumbai: Reserve Bank of India (RBI) governor Raghuram Rajan on Friday stressed the need for improving the business environment as a way to push growth rather than extending stimulus and rate cuts.

Turning to inflation, the RBI Governor said inflation figures which showed consumer inflation easing to a record low of 3.66 pecent in August were due to a favourable base effect.

“While we understand the difficulties industry has and will work as hard as we can on improving the environment, India must resist special interest pleas for targeted stimulus, additional tax breaks and protections, directed credit, subventions and subsidies, all of which have historically rendered industry uncompetitive, government over-extended, and the country incapable of regaining its rightful position amongst nations”, said Rajan. Our own experience suggests that we have to be careful.

“To support continued progress toward maximum employment and price stability, the Fed committee today reaffirmed its view that the current 0 to 1/4 per cent target range for the federal funds rate remains appropriate”, Federal Reserve chair Janet Yellen said after a two-day meeting in Washington.

“We must have the discipline to stick to the strategy of building necessary institutions and creating a new path of sustainable growth where jugaad is no longer needed”, he said.

“If we look around the world today, it does not present a pretty picture”, he said at the CK Prahalad memorial lecture on Friday. Monetary policy will accommodate to the extent there is room.

Bloomberg survey last month saw Rajan cutting the key policy rate to 7 percent from 7.25 percent by the end of this month.

Rajan pointed out that prices of finished goods have not fallen as much as the input commodities and therefore, even those trading in such goods are able to maintain or expand their margins in a situation of negative WPI.

Rajan welcomed the Finance Ministry’s move to come out with a Bankruptcy Code like in other countries, saying it will help in NPA resolution as well as in deepening the struggling corporate bond market by giving investors clarity on whose rights take precedence.

Rajan also said he is all for expanding the capital base of asset reconstruction companies by getting more investors, but sounded cautious about efforts to have public private partnerships in this regard. “Financial markets around the world are required at this stage to take a more cautious stance”, he added.