India’s economic growth below potential, says Rajan

As per the RBI governor, investment, inflation, and lending rates are the key problem areas

GN Bureau | August 30, 2016


#seventh pay commission   #lending rates   #inflation   #Raghuram Rajan   #RBI  
Raghuram Rajan


Outgoing reserve bank of India (RBI) governor Raghuram Rajan feels that India’s economic growth is below its potential. In a foreword to RBI’s annual report 2015-16, Rajan highlighted what all ails the country’s economy. Rajan’s term ends on September 4.

Rajan stated that while policy actions taken by the government and RBI in restoring macroeconomic stability to the economy have had positive effects, there are a number of areas to be considered “work in progress”. He pointed out three areas of importance, from RBI’s perspective.

“First, economic growth, while showing signs of picking up, is still below levels that the country is capable of. The key weakness is in investment, with private corporate investment subdued because of low capacity utilisation, and public investment slow in rolling out in some sectors. Second, inflation projections are still at the upper limits of RBI’s inflation objective. With the Reserve Bank needing to balance savers’ desire for positive real interest rates with corporate investors’ and retail borrowers’ need for low nominal borrowing rates, the room to cut policy rates can emerge only if inflation is projected to fall further. Third, the willingness of banks to cut lending rates is muted; not only does weak corporate investment reduce the volume of new profitable loans, their stressed assets have tightened capital positions, which may prevent them from lending freely. Certainly, the reluctance to lend to industry and small businesses is more visible among the more stressed public sector banks compared to the private sector banks,” Rajan wrote.

He, however, added that there have been some developments that bode well. They included “expectations of a good monsoon (corroborated thus far) coupled with more money in the hands of government servants (as a result of the implementation of the 7th Pay Commission recommendations)” and also “reforms like the recently passed Goods and Services Tax legislation in Parliament”.

 

Comments

 

Other News

BEL stake sale gets overwhelming response

 State-run aerospace and defence company Bharat Electronics (BEL), a Navratna enterprise, on the first day of its stake sale by the government aimed to raise Rs 1,650 crore received an overwhelming response. Besides, quota of non-retail investors was subscribed by over 2.34 times. The govern

Suppress ego to write biography: Ramachandra Guha

Noted historian Ramachandra Guha has listed reasons on why historical biographies never took off in a big way in India. Delivering the annual lecture at Sahitya Akademi’s Festival of Letters in New Delhi on Thursday, Guha said that historical biography is that part of history which is more

AAI unveils e-billing solution for navigation service providers, air operators

 State-run Airports Authority of India, a miniratna PSU, in association with international air transport association (IATA) has unveiled a comprehensive e-billing solution—SKYREV360 to help air navigation service provider (ANSP) and airport operators. The system would help the users to

A golden touch

I dreaded a bit as I stepped inside the Thrissur district general hospital in Kerala. I have walked in and out of government hospitals almost half of my life as a health and science writer for various newspapers. But I was never the patient. Going to a government hospital carried with it&nbs

Should students` unions be banned?

Should students` unions be banned?

Take action, NSUI tells police over varsity clash

The National Students Union of India (NSUI) on Thursday sought action against those who had assaulted students and teachers of Delhi university at a protest march on Wednesday.` “Our sole motive is to compel the police to take some strict actions against the lawbreakers who brutally manhand

Video

Digital Transformation Summit

Current Issue

Opinion

Facebook    Twitter    Google Plus    Linkedin    Subscribe Newsletter

Twitter