Reserve Bank Governor Raghuram Rajan on Friday cautioned the government on Prime Minister Narendra Modi’s ‘Make in India’ mantra, suggesting that India would have to look for regional and domestic demand for growth — to make in India primarily for India.
Dr. Rajan said that at this stage, an exports-push strategy for growth would be ineffective; as the industrial world stagnated, many emerging markets were rethinking their export-led growth model, he said. He was delivering the Bharat Ram Memorial Lecture here.
“There is a danger when we discuss ‘Make in India’ of assuming it means a focus on manufacturing, an attempt to follow the export-led growth path that China followed … But the world as a whole is unlikely to be able to accommodate another export-led China,” Dr. Rajan said.
Since the global economy was still weak, he argued, it would be much less likely to be able to absorb a substantial additional amount of imports in the foreseeable future.
“Export-led growth will not be as easy for India as it was for the Asian economies that took that path before.”
He also cautioned the Modi government against picking a particular sector such as manufacturing for encouragement, simply because it had worked well for China. “India is different, and developing at a different time, and we should be agnostic about what will work … Such agnosticism means creating an environment where all sorts of enterprise can flourish,” the RBI Governor said.
He announced that the RBI was likely to discuss an appropriate timeline with the government to take the economy to the centre of the medium term inflation band of 2 per cent to 6 per cent.
Speaking at the Bharat Ram Memorial Lecture here he said that a “Volker” like disinflation was never on the cards in India, but an “Urjit Patel glide path fits us very well.”
Industry and Union Finance Minister Arun Jaitley have consistently demanded that the Reserve Bank lower interest rates to spur investments and growth. With inflation slowing considerably, the clamour has surged.
Laying out an agenda for achieving higher growth, Dr. Rajan recommended that the Modi government cut red tape and make it easier to do business. For this, he recommended quick rollout of the Goods and Services Tax (GST) and removal of all impediments to banks’ recovery of stressed loans.
A well-designed GST bill, by reducing State border taxes, Dr. Rajan further said, would have the important consequence of creating a truly national market for goods and services, which would be critical for the country’s growth in years to come. “If external demand growth is likely to be muted, we have to produce for the internal market … India will have to work on creating the strongest sustainable unified market, which requires a reduction in the transactions costs of buying and selling throughout the country.”
Numerous inspectors who had the power to close down business and the petty bureaucrat, empowered by myriad mysterious regulations, could become tyrants. “The government is examining the cost of doing business in India with a view to bring it down … it is appropriate that the government intends to make him help business rather than hinder it.”
“We should not make banks’ task harder by creating impediments in the process of turning around, or recovering, stressed assets,” said Dr. Rajan. referring to the courts the Government and the Reserve Bank itself.
He also recommended that India invest in idea-producing institutions such as research departments of official local bodies, think tanks and universities.
