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| Recovery not broad based: Gokarn |
| BS Reporter / Mumbai Nov 25, 2009, 00:57 IST |
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New dy governor of RBI says capital flows, inflation challenges
 Subir Gokarn, who took over as the Reserve Bank of India (RBI) Deputy Governor today, said economic recovery, which was still in its early days, was sluggish and not broad based.
“It’s a recovery but hardly a boom. It is abnormally dependent on a few sectors. So, it could be premature to look for signs of normalcy. We have to see where funds are flowing, what they are flowing to, if they are flowing into activities which will eventually help sustain growth,” Gokarn told reporters shortly after taking charge as RBI’s fourth deputy governor.
The Indian economy, which returned to normalcy following the global economic meltdown, faced newer challenges like rising inflation and capital inflows, he added.
Large flow of foreign funds into domestic stock markets has led to a rise in the rupee in recent months and has drawn complaints from exporters. The government has, however, said that foreign inflows did not pose a threat at present.
Gokarn said though the country was on course to recovery, there might be some domestic and external threats. “So, we have to maintain a balance. We cannot ignore the external circumstances.”
“We are getting back to a more normal situation on the macro-economic front. That criticality has changed a bit now and we are dealing with a number of other pressures...inflation being one of them...capital flows and the possibility that these will expand and the implications it will bring for currency and reserve management or liquidity management,” Gokarn added.
In its second quarter review of the monetary policy in October, RBI had signaled an exit from its accommodative monetary stance. However, Gokarn said the exit policy was not to disrupt the growth process.
“Exit means we are shifting the responsibility of driving growth from a predominantly government-driven spending pattern to a private spending pattern. That is a transition that an exit strategy has to accomplish,” he said, adding that it would not be a good exit strategy if there was a significant slowdown in the economic growth rate.
“Exit is clearly going to have to be done very strategically. How we balance it, how we sequence it are the challenges that we face. Even as we do that, the risk of upsetting the apple-cart are high and we cannot underestimate them," he said.
The silver lining, Gokarn said, was the country’s economic outlook, which, as compared with year ago, was far more comfortable.
“And it gives policy makers a little bit of breathing space,” he said.
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