Rajan explained that given the surplus liquidity in the system the overnight reverse repo rate which is the operating rate at which marginal cost of funds are priced is close to 3.25% and the inflation figure has reached 7% which implies a real interest rate being close to negative 4%. " That's as accommodative as you can get across the world. This is more accommodative than many central banks ".
"I do not want to opine on future RBI policy," Rajan said at an online panel discussion organised by the Centre for Financial Studies (CFS) of Bharatiya Vidya Bhavan’s SPJIMR ( S P Jain Institute of Managment and Research) “India’s Third Pillar – The Way Forward”, but I do want say it is already too accommodative"
Underscoring the challenges for the central bank Rajan said, "I would say that let RBI do its job and they have a difficult job balancing slow growth and inflation is picking up."
A positive fallout of the COVID-19 pandemic on the policy front is that India can now undertake growth oriented reforms. " Despite the terrible loss of lives and hardships brought by the pandemic, there are some silver linings that might emerge for India. silver lining is that India can reform One possible in ways that can both, enhance growth and also improve the quality of medical institutions across the country." Rajan said.
He also called for reconsidering the proposal of setting up a fiscal commission to monitors the performance of the budgets and a more consensus based policy reforms.
Explaining the economic impact of the pandemic Rajan said "If a number of firms have shut down never to reopen again, the supply side of the economy is affected. If a number of households have stopped sending their kids to school because they can't afford to do so, that again inhibits our growth potential for the future as these are going to be poorly educated kids, capable of much less quality jobs,"
Commenting on the "Atmanirbhar Bharat" initiative, Rajan said in order to export, one should be able to import things that go into those exports as cheaply as it can. "China's rise as an export power came on the back of assembly. It brought in the stuff, put it together and exported it out. In order to export, you have to import. Don't erect huge tariffs and focus on creating the right environment for production in India," he said.
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19 Comments on this Story
Ravindra Shetye28 days ago
Last para is very important.
Atmanirbhar should start from assembly of imported parts which take time to manufacture locally and make gradually more and more local manufacture of parts to go in the Assembly.
A Raghuram Rajan says this is how China started and succeeded in manufacturing more and more parts for Assembly.
Chandrasekar Raghavan32 days ago
Just partner with Isreal, taiwan, japanand korea, open the door keeping things simple
Simplysuperb32 days ago
The Most Important Thing: