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Higher growth needs more work: Raghuram Rajan

Says India needs to do a lot more on ease of doing biz, supply-side reform and a predictable tax environment

BS Reporter  |  Mumbai 

RBI Governor Raghuram Rajan speaks during a seminar organised by Gateway House. a private think tank in Mumbai on Monday
RBI Governor Raghuram Rajan speaks during a seminar organised by Gateway House. a private think tank, in Mumbai (pic: Kamlesh Pednekar)

A faster rate of growth isn’t going to happen soon in India, said Reserve Bank of India (RBI) Governor Raghuram Rajan. For that to happen, various things have to be done on improvement in supply and a better environment for doing business.

“Can (India) go to high level of growth (nine per cent yearly) without inflation? The answer is no. We have to create underlying supply conditions that would allow us to have much higher demand. What we need to do is not only boost the demand but also supply,” he said, at an event organised by Gateway House, an institution focusing on global relations. The event was organised ahead of the G20 leaders’ summit in Turkey next month.

“It means a lot of work on a number of fronts which we’re currently engaged in. But, it is a steady process rather than an overnight shift... We need to eliminate supply constraints, including on capital. If we look around, one of the biggest worry business persons have is where to find the people for the job,” he said.

RBI has estimated the economy will grow 7.4 per cent in 2015-16. For the Make in India government

initiative to spur investment in manufacturing, Rajan said we need to make it easier for business to operate and also make taxation more transparent and predicable.

He cautioned against populist policies, saying they are always driven by a desperate need for growth, while the fact is that the real ways of growth are really hard.

Talent crunch

Rajan stressed there was a need to improve the quality of human capital in the country. That included a need for more and better economists.

“The G20 framework working group is supposed to be co-chaired by Canada and India. 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, observing the country did not have many people in the government with that kind of training and capacity.

Role of IMF

Rajan said the International Monetary Fund (IMF) should play an active role in questioning the stimulus policies of developed economies. And, said emerging markets must have a bigger voice in global debates.

Himself a former chief economist at the IMF, he said developed countries were adopting monetary policies without consideration for the negative impact they had on the global economy. And, and he noted emerging countries were engaging in currency intervention that sparked competitive devaluations.

It was time for policymakers, led by the IMF, to address these “extreme” policies. Otherwise, “we have to worry where this ends.” “The IMF has been sitting on the sidelines and applauding these kinds of policies right from when they have been initiated, and hasn’t really questioned the value of these kinds of policies,” he said of the developed world. “We can do better,” he added, calling on emerging economies to push back against such policies.


    “The policies initially encourage growth but the effect quickly wears off, leading to a musical (chair-like) crisis”
    “The IMF has been sitting on the sidelines applauding easy money policies ever since they were initiated and hasn’t really questioned their value”
    “The government’s flagship Make In India can be successful by creating a transparent taxation system and building a business-friendly environment. Micromanaging the future is going to become hard. Make In India but let’s not restrict what we make in India”
    “One of our solutions of the problem of employment was to create small-scale industry but they got decimated by competition from elsewhere. It would have been better if we would have allowed large-scale industry in those places. They would have employed much more”
    “There is a need to improve the quality of human capital in the country. That includes a need for more and better economists”

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First Published: Tue, October 20 2015. 00:20 IST