Indias economy will improve in the second half of 1997-98 (April-June), Reserve Bank of India (RBI) governor C Rangarajan said yesterday.
The overall economy will show an improvement in the second half of 1997-98, Rangarajan said at the special convocation of the Indian Institute of Management (IIM) where he was conferred the honorary title of `Fellow of IIM.
The RBI delivers its second half 1997-98 monetary and credit policy statement on October 21, and there has been widespread speculation that the Central bank will cut its key bank rate by 0.5 or 1.0 percentage point. The bank rate is 10 per cent currently.
It is hoped that as the operational efficiency of the banks improves, they should pass on some part of the gains in the form of lower interest rates to the borrowers by reducing the spread, Rangarajan said.
Bankers are also watching out for any signal from the RBI that it intends to reduce banks cash reserve ratio (CRR), currently 10 per cent, which would boost funds available for lending.
On the industrial revolution sweeping the country in the wake of the reforms, he said India cannot afford to miss the second industrial revolution after having missed the first.
We are living in exciting times. India missed the first industrial revolution. We cannot afford to miss the second as we are living in a fast changing world, Rangarajan said.
One analyst has compared these changes to the movement of the continental plates under the surface of the earth `plate tectonics as geologists call it, he said, adding that whether such a description fits in the changes that are occurring today, history alone can tell.
Rangarajan said in the current phase of industrial development, when Indian firms are subject to competitive forces, both domestic and global, the role of the Indian Institute of Managements is even greater.
The RBI governor said our rate of growth, though high in relation to our performance in the previous years, has fallen short of our expectations and what certain other countries have been able to achieve.
The miracle of east Asian countries may to some extent have been dimmed by the recent crises in these countries. Nevertheless, they have shown that it is possible for countries to grow at a sustained rate of seven per cent or more for several decades, he said.
Rangarajan said that in ensuring a higher growth rate, there is no doubt that we must bring about an increase in saving rate and consequently investment rate. But at the same time, one cannot over emphasis the need for improving the productivity and efficiency of input use.
He said in the period 1960-87, the total factor productivity growth of east Asia was 1.9 per cent per annum. The key thus to Indias growth lies in improving productivity and efficiency. Contrary to the general impression, the natural resources of our country are not large. From the point of view of long-range sustainability, the need for greater efficiency in the management of natural resources has become urgent, he added.
The RBI governor said, In a capital scarce economy like ours, there can be no excuse for underutilisation of capacity. Macro policy framework and micro management practices must be such as to bring about the desired increase in productivity.
While the policy framework must be supportive, industrial structure must be such as to compel firms to continually innovate and to cut costs, he observed.
The policy environment, organisational structure and the attitude to work and work technology, all these have to be right, Rangarajan said.
The recent development experience had clearly shown that countries which had grown fast were those which had made heavy investment in education.
Even as we aim at creating broad-based educational system, including compulsory education at the primary and secondary levels, we also see institutions of excellence in all disciplines, he said.
