Hyderabad: A growth of 7 per cent is possible in short-term but major reforms will be needed to take it to higher levels, RBI Governor Raghuram Rajan said today.
“The Prime Minister (Narendra Modi) has an ambitious agenda for India. The level of expectations is very high. My sense is that without thinking about major reforms of our system, we can put the economy back on track to a reasonable level of growth,” he said in an interaction with the students of the Indian School of Business (ISB) here.
“We hope that in the final half of this year or by next year, we could grow to be in the sixes (six per cent GDP growth rate) and hopefully sevens by the year after. To sustain that and take it to a higher plane, we have to think about how we reform the system of fundamentals.
He said the what the government is focusing on is “how do we improve the framework for doing business. How do we make it easier for one of you to go and become an entrepreneur”.
He felt that it should be easier for businesses to grow in terms of finance and regulations among others.
“You need to make it easy for business to grow. That means finance, regulations and skilled labour. I think the government is working on all these plans. My sense is, if we can do this and upscale the whole thing, I don’t see why we cannot over time reach double digit growth,” he said.
Replying to a query, he said that the RBI and the government enjoy a free and cordial relationship and are currently in discussion on improving the financial sector, for example, putting in place a financial resolution authority.
“The truth is that the government and the RBI enjoy a free, frank and cordial relationship. We discuss many things and we find and do what is in the best interest of the country. There is discussion going on right now on a couple of things.
“One is of course a number of institutional structures that will improve the functioning of the financial sector — for example, a financial resolution authority,” he said.
Such an authority would be helpful in cleaning up the system by closing down entities which are in trouble and resurrecting promising ones, he said.
“We really need a financial resolution authority so that we can close down financial institutions which get into trouble without necessarily merging them and taking up losses.
“We need to clean up institutions while resurrecting functioning ones. So, the financial resolution authority will be an entity doing it,” Rajan said.
The RBI is also in discussion about different aspects of the monetary policy framework which, Rajan said, is a far-sighted move by the government.
“The monetary policy framework is again a far-sighted move on the part of the government. It is an attempt to move us to standards where other countries have reached. It is a discussion about how we make objectives of the central bank more expressive,” he said.
There is no need for any conflict between the RBI and the government and various things can be worked out smoothly, he said.