The Governor of the Reserve Bank of India (RBI), Raghuram Rajan, has said that India as Asia’s third-largest economy is being hampered by a drop in public and private investments amid hopes that strong foreign capital flows will help rectify this weakness.
“On the growth front, the central concern is with investments,” said Raghuram Rajan, at a business event in Hong Kong on Friday. “Private investment has fallen back quite a bit and so has public investment,” he added.
The RBI has cut its growth forecast for the current fiscal year to 7.4 percent from 7.6 percent previously, well below the government’s target of 8 to 8.5 percent, but still faster than China.
Despite the slowdown in growth and investments, Rajan said strong foreign direct investment and some traction in infrastructure development may encourage private investments.
Earlier this month, India eased foreign direct investment norms in 15 major sectors, including mining, defence, civil aviation and broadcasting.
“We are seeing a lot of traction in FDI, in both announcements and actual investments on the ground,” Rajan said.
He declined to comment on the appropriate level of the Indian rupee, but said policy makers should guard against a debt build-up in the global economy in another swipe at quantitative easing policies pursued by global central banks.
However, he said the global economy isn’t likely to remain in a long period of sub-par growth.
“I would doubt this (low-growth) is a twenty-year phenomenon and I think we should be coming out of it,” Rajan said.
“That is why we should be careful of creating an environment that leads to a significant creation of debt.”