Former RBI Governor C Rangarajan advocated maintaining the ongoing hawkish stance by the Reserve Bank of India to tame inflation and expected that the rupee will strengthen with resumption of capital inflow.
He also said the country has to clock an 8-9 per cent year-on-year growth for the next five years to achieve the target of a USD 5-trillion economy.
Speaking at the Samar Kanti Paul Memorial Lecture at the Ramkrishna Mission Institute of Culture on Saturday evening, the former RBI governor said he would be happy if the country’s economic growth reaches seven per cent in the current fiscal.
“The current policy stance should continue. Developed countries are also taking steep rate hikes. I expect more rate hikes,” Rangarajan said without elaborating on the quantum.
RBI has been maintaining a hawkish stance with rate hikes to tame inflation.
Speaking on the rupee trend, the 90-year-old economist said, there was a sharp fall in rupee value against the US Dollar to Rs 79-80 with the outflow of capital.
“Now, with the inflow of capital, the value of rupee is expected to strengthen but will not reach the pre-COVID levels”, he said.
There was a positive inflow of Rs 22,000 crore from foreign portfolio investors in August 2022, after months of relentless selling.
Rangarajan stressed on the need to increase the investment rate to 33 per cent, which has slipped to 27-28 per cent, to achieve a higher growth rate.
The share of private investment must also increase, he said.
Asserting that reforms must continue in various sectors like power and agriculture marketing, Rangarajan said that the reform measures undertaken in the 1990s were “well-coordinated and had a composite character”.
He also called for harmony in the Centre-state relationship.
“A consensus building is an integral part as the state and Centre are joint partners in the growth process,” he said.
Pointing out the labour reforms, he mentioned that it is “best “during an upswing in the economy.
He urged the government to address challenges for adaptation to new technology and issues related to employment generation.
Citing an example, Rangarajan said that switching to electric vehicles may be beneficial with a reduction in fossil fuel use but the country may have to import other products for EVs. “And on the other hand, we may have a huge impact on employment from the existing ecosystem”, he added.