He added however that reaching 9 per cent growth rate is a steady process and can not be attained overnight. “Populist policies are being driven by need for growth but the political reality is that its a burden to acknowledge it”, he said. It would have been better if we had supported large industries because it would support a large amount of jobs.
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Recalling crises in Mexico, the Southeast Asia currency crisis, and the Argentine and the Brazilian crises, he said these were the spillover results of the low interest policies of the major economies in the 1990s as they tried to revive their banks post the emerging market crisis of the 1980s.
The Reserve Bank of India governor said the country must invite more foreign capital to boost growth.
“That (the 9 per cent growth) is certainly an aspiration we should have but we need to eliminate the supply constraints, including our human capital”, Rajan said. Rajan said the current government’s Make in India slogan rather than micro managing things will work better if it just creates an enabling environment like easier tax structures and allow companies to select what they want to do.
Speaking about deflation, Rajan explained there is a very solid worry, specially within the United States granted its old experience in the 1930s, that if deflation takes hold then we are going to have a China-like encounter and can need to writeoff 15-20 years of expansion.
Rajan, who was the chief economist at the IMF during 2003-06, has in the past questioned the monetary policies of the developed countries and called for more co-ordination among central banks to ensure that policy in one country does not have an adverse impact on the other. “Canada has seven strong economists working on this group and trying to further the agenda while India brings fewer people to the table because we don’t have that strength in the number of economists that we can actually contribute”, he said.
Emerging markets had to absorb the consequences of capital flows, he said.
“The International Monetary Fund is supposed to be looking at these sorts of issues… but it is sitting on the sidelines and applauding such policies”, he told a G20 consultation meeting in Mumbai.
Rajan’s comments, including those on need for greater coordination by central banks, come amid fears of hard-landing of the Chinese economy, the fastest growing until recently. “Its mandate is purely domestic.”, he added.
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In order to attract higher investments, the Indian taxation system should be more transparent, RBI governor Raghuram Rajan said on Monday.
