India’s slowing economy and its massive current account and fiscal deficits are not structural problems and can be fixed with modest reforms, newly appointed central bank Governor Raghuram Rajan said on Wednesday.
Rajan’s commentary on the Project Syndicate website was dated Sept 11, although it was written before he took office on Sept 4, according to the site.
Rajan acknowledged in the column that the economy will expand at a pace that will be its slowest in a decade, with annual growth this year likely to be between 5 and 5.5 per cent.
He also drew an analogy between the current bearishness towards the country, whose currency has barely recovered from record lows last month, to the fickle loyalties of Indian cricket fans.
“A few years ago, India could do no wrong…. Today, India can do no right,” Rajan wrote.
Referring to the record current account deficit and slowing growth, Rajan said those “can all be fixed by means of modest reforms.”
“This is not to say that ambitious reform is not good, or is not warranted to sustain growth for the next decade. But India does not need to become a manufacturing giant overnight to fix its current problems,” he wrote.
He said the slowdown in the economy was paradoxically the effect of substantial fiscal and monetary stimulus that its policymakers had injected into its economy in the aftermath of the 2008 financial crisis.
The resulting growth spurt led to inflation, especially because the world did not slide into a second Great Depression, as was originally feared, he said.
“So monetary policy has since remained tight, with high interest rates contributing to slowing investment and consumption.”
Economic growth would slow to a 5 to 5.5 percent pace, he said, adding that was “not great, but certainly not bad for what is likely to be a low point in economic performance”.
For the full commentary, see t.co/E57XWxveEq
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