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Recovery uneven, more work needs to be done: Rajan

RBI Governor says while auto is doing well, farm sector needs to pick up after two successive droughts; looks at small enterprises for jobs

Economic Recovery

Jayajit Dash  |  Bhubaneswar 

RBI, Raghuram Rajan
File photo of RBI Governor Raghuram Rajan (Image credit: Kamlesh Pednekar)

Reserve Bank of India (RBI) Governor Raghuram Rajan on Saturday said recovery in Indian economy is uneven. “Broadly, the economy is in the midst of a recovery but it is uneven… Some sectors are certainly experiencing stress. There is still work to be done. A good monsoon is going to be very beneficial for growth,” he said in his address to ministers and civil servants at the Odisha Knowledge Hub lecture series titled ‘India: Prospects & Challenges’.

Rajan said sectors like auto are doing quite well but agriculture needs to pick up after being hit by two successive droughts. The RBI has been engaging with banks, constantly asking them to bring down lending rates so that customers can benefit.

The central bank’s focus, he said, was to create the environment for strong, sustainable growth and generate more jobs.

“Jobs are created by small & medium enterprises (SMEs) that grow into large enterprises. In order to create these kinds of start-ups, four to five conditions are needed — ease to enter and exit, access to input and output markets, protection of property rights, making the whole process of enterprise politically viable and creating a safety net for the employees of start-ups,” Rajan added.

One of the biggest roadblocks faced by the SMEs is getting land at affordable price, he said. “Land acquisition cost in India is one of the highest in the world. Governments need to find land for the SMEs — either through land banks or industrial parks,” he added.

The other constrains for the SMEs, he said, was access to finance which is more important than the cost to finance. “To overcome this, we have brought medium enterprises in the ambit of priority sector lending. This is because our medium enterprises are tiny compared to the developed countries,” Rajan said.

The RBI Governor said, since small banks tend to be more comfortable in lending to small entrepreneurs, we need to strengthen regional rural banks (RRBs) and urban cooperative banks. He pointed out that micro lending by both public sector banks (PSBs) and private banks has grown phenomenally since 2011.

Total lending by PSBs to micro enterprises has grown from Rs 4 lakh crore in 2011 to Rs 7 lakh crore in 2015.

For private banks, it has grown from Rs 1.09 lakh crore to Rs 2.32 lakh crore. Lending to micro enterprises as a proportion to the GDP has risen to 7.7 per cent, from six per cent in 2012.

Stressing on the need for ease of entry and exit, Rajan welcomed the proposed Bankruptcy Code, stating it will allow stressed firms to exit and new ones to come up.

Rajan said RBI has been enjoying full autonomy and support of the government so far and it should be allowed to take its own decision.Pitching for better business environment, Rajan said India has done away with the licence raj, but ‘inspector raj’ continues to some extent.

He also said that regulations should be for betterment of the industry and not to discourage entrepreneurs. He suggested a system of self-certification for the industries with some checks on the part of the authorities to prevent any misuse.

Factory and boiler inspectors and other field level regulators should have adequate knowledge on the initiatives being taken by the government and RBI for the betterment of small and medium enterprises, he said. Light regulation, he said, is very important in small and medium enterprise. Field level regulators must have information regarding the initiatives, he added.

Rajan gave examples of the UK and Italy saying, “We have seen that while regulations are liberal in United Kingdom, it is very heavy in Italy. It is seen that the start-ups in the UK grow faster than their Italian counterparts.”

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First Published: Sat, May 21 2016. 23:04 IST