Reserve Bank of India governor Raghuram Rajan on Friday warned against boosting GDP growth through additional debt, saying that any deviation from the fiscal consolidation path will hurt economic stab
Reserve Bank of India governor Raghuram Rajan on Friday warned against boosting GDP growth through additional debt, saying that any deviation from the fiscal consolidation path will hurt economic stability.
Mr Rajan’s statement came on a day when the government downgraded economic growth for 2014-15 to 7.2 per cent from the earlier estimate of 7.3 per cent. It also lowered growth for the fiscal year to end-March 2014 to 6.6 per cent from 6.9 per cent earlier.
The RBI governor said that it is to the immense credit of the government that in today’s troubled time India has over 7 per cent growth, low inflation and a low current account deficit. “But it is at such times that we should not be overambitious,” he cautioned.
Mr Rajan said country already has high consolidated fiscal deficits, while recent power reforms would likely pressure finances of state governments.
He said that macroeconomic stability during the global turmoil cannot be risked and the government and the Central Bank should continue to bring down inflation. “As Brazil’s experience suggests, the enormous costs of becoming an unstable country far outweigh any small growth benefits that can be obtained through aggressive policies. We should be very careful about jeopardising our single most important strength during this period of global turmoil — macroeconomic stability,” he said, while delivering the C.D. Deshmukh Memorial lecture.
