In a recent discussion on the key to sustainable growth, Raghuram Rajan has expressed his opinion. He added: “We have to have to have the discipline to stick to our strategy of building the necessary institutions and creating a new path of sustainable growth”.
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In this hard (global) environment, growth has to be obtained in right way.
“If we look around the world today, it does not present a pretty picture”, he said at the CK Prahalad memorial lecture on Friday.
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. With the world being an inhospitable place, we have work hard to strengthen our current recovery and put it on more sustainable footing.
“On-hold US Fed paves way for RBI rate cuts”, Singaporean brokerage DBS said in a note this morning, citing lower-than- expected headline retail and wholesale price inflation.
Industrial countries are still struggling, with a few exceptions, to grow.
Although Mr Rajan said India was far sturdier, calling it “an island of calm in an ocean of turmoil”.
“We are in a favourable environment now”. He reiterated the policy guidance he gave last month, saying he’s watching the Fed move, the monsoon and other factors for room for further accommodation. India must resist special interest pleas for targeted stimulus, additional tax breaks and protections, subventions and subsidies – all of which have historically rendered industry uncompetitive, government over-extended and the country incapable of regaining its rightful position.
The need for the government is to create the enabling environment in which businesses can flourish, he said. It will also focus on cleaning up the banking sector of the distressed assets, so that it can fund the growth agenda.
Brazil offers a salutary lesson.
The head of India’s central bank on Friday warned Asia’s third-largest economy against trying to grow too fast, pointing to the plight of recession-hit Brazil as a cautionary tale. The 7.6 per cent growth came on the back of substantial stimulus after the global financial crisis.
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RBI is scheduled to hold its next monetary policy review meeting on September 29, and expectations for a rate cut, the fourth this year, have increased after the US Federal Reserve decided on Thursday night to leave interest rates unchanged at near-zero levels.
