"...what one should be careful about is expanding the misdirected subsidies in the system. We have to be very careful because we need to spend on very important things we are not spending on," he told Karan Thapar on his programme Devil's Advocate on CNN-IBN.
When asked whether hike in LPG quota was a "misdirected subsidy", Raghuram Rajan nodded in affirmation.
"I believe there is a certain amount of population that can benefit from subsidised LPG cylinder quota. But beyond certain point you are reaching people who can well afford to pay for it. Now whose pocket is it coming from. Its coming from the pockets of people who are getting subsidised," Raghuram Rajan said.
The Union Cabinet today raised the quota of subsidised LPG to 12 cylinders from nine at present, and will cost Rs 5,000 crore in additional subsidy annually.
"(In raising the quota) you are going from 87 per cent to 97 per cent (of LPG consumers)... If you are subsidising 97 per cent of the population, you are basically subsidising people who are paying for it themselves," Raghuram Rajan said.
Asked if the government will be able to meet its fiscal deficit target of 4.8 per cent of the GDP, he said heavy expenditure cuts and other initiatives will help the government reach very near the target.
As regards growth, he said it would be slightly below 5 per cent in the current fiscal but would improve in the coming years as steps taken by the government will come into play.
"For the year as a whole, it will be between 4.5 and 5 per cent," Raghuram Rajan said.
The economic growth rate slipped to decade's low of 5 per cent in 2012-13. It has recorded a growth of 4.6 per cent in the first half of the current fiscal.