Growth is still very weak: Rajan

Reserve Bank of India (RBI) Governor Raghuram Rajan, on Thursday, said growth was still very weak. Nevertheless, it was stabilising on the back of a good harvest, strengthening exports, and some early signs of resumption of large stalled projects, he added. “I have no doubt that the fiscal deficit for 2013-14 will be close to, or below, the Finance Minister’s red line,” said Dr. Rajan while delivering the D. R. Gadgil Memorial Lecture on ‘Inclusive growth and the role technology can play in it’, here.

However, the RBI Governor said, “We have to work to ensure macroeconomic stability, which means strengthening growth, especially through investment, maintaining a moderate current account deficit, achieving a fiscal deficit consistent with the government’s fiscal roadmap, and reducing inflation.” Going forward, he felt that, “we need to continue on the path of fiscal consolidation constantly improving the sustainability and quality of fiscal adjustment. It is important that we spend money on needed public investment, even while reducing misdirected subsidies and entitlements.”

Dr. Rajan said that good fiscal control would help the central bank in its fight against inflation. “So will moderation in agricultural support price inflation, which will ensure that these prices only provide a baseline level of support when the farmer is in difficulty, without displacing market prices.” Accurate market prices, together with good dissemination of data on sowing patterns, could do a far better job than support prices in directing agricultural production to where it was most valuable and needed, he added. “Somewhat paradoxically, raising energy prices to market levels will also lead to lower inflation over the medium term, the horizon over which the RBI is trying to contain inflation”, Dr. Rajan observed.

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