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RBI Governor Recommends Stable Policy-led Growth For India

Raghuram RajanRBI Governor Raghuram Rajan has said that India must strike a note of caution in its growth expectations and not become over-ambitious given the uncertain global scenario. He said that the focus must be on sustainable economic growth.

Delivering the Mahtab Memorial Lecture in Bhubaneswar, Rajan stated that the global economy was growing very slowly with growth factors varying vastly between nations. He also stated that the notion to de-link growth between developed and emerging nations was illusory. India has been aiming at growth of 7.5 percent over medium term while seeking to maintain its fiscal deficit targets and managing its inflationrates.

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In a statement, Rajan said,

Given great uncertainty about outlook and policies of others in these times, a country like India should try to take sensible measures without getting too ambitious, as we have done so far. This will serve as a sound basis for strong and sustainable Indian growth as the world economy picks up.

Rajan stated that the unconventional monetary policies followed by developed economies today made things more complicated, affecting capital flows for emerging markets. He added that it was important for countries to discuss monetary policies in a global setting and asked central banks to think internationally.

Since such integrated and coordinated monetary responses between countries would take time, Rajan said that countries must focus on managing vulnerabilities, improving macro-stabilization and building buffers.

Rajan noted that India has been relying on a number of measures to bring stability to its economy. Some of those measures include controlling inflows, interventions in foreign exchange market and maintenance of healthy foreign exchange reserve balance. He added that India must reduce any element of tax uncertainty to reassure investors.

Focusing on the importance of free enterprise, Rajan said that although India had progressed significantly in encouraging free enterprise within its economy, unless the common man is able to benefit from it he will not attach value to free enterprise.

Rajan observed that a free enterprise system requires unrestricted entry and exit, easy access to input and output markets and property protection to flourish. He commended the recently passed Bankruptcy law as it would help failed businesses to have a clean exit and enable them to redeploy resources for more productive uses. In Rajan’s view, the swift handling of failures in business ventures helped entrepreneurs and creditors to move on faster without being held up by the consequences of earlier decisions.


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