1. Raghuram Rajan says India stands out for growth & investment potential; but these factors are worrying him

Raghuram Rajan says India stands out for growth & investment potential; but these factors are worrying him

RBI Financial Stability Report: Raghuram Rajan has highlighted key risks that the Indian economy faces, despite standing out globally.

By: | Published: June 28, 2016 5:57 PM
June 2016 Financial Stability Report, raghuram rajan, rbi Financial Stability Report, Rajan Financial Stability Report Raghuram Rajan’s worries: In the central bank’s ‘June 2016 Financial Stability Report’, Rajan talks of rural distress, stress in corporate sector and commodity cycle reversals. (PTi Photo)

RBI governor Raghuram Rajan has highlighted key risks that the Indian economy faces, despite standing out globally in terms of growth and investment potential. In the central bank’s ‘June 2016 Financial Stability Report’, Rajan talks of rural distress, stress in corporate sector and commodity cycle reversals as reasons for worry.

“Indian economy at this juncture stands out in terms of growth and investment potential. With the Government’s commitment to continue on the path of fiscal discipline, the efforts on containing the revenue deficit and rationalising subsidies need to be reinforced, even as gross fixed capital formation needs a fillip,” he says.

While acknowledging that India’s external sector indicators show a relatively stronger position, Rajan adds that a faster growth in India’s oil import in terms of volume in recent years makes it imperative to be alert to the risks of commodity cycle reversals.

Also read: Raghuram Rajan says we need to stay on the path of sound domestic policies

On the issue of corporate sector stress, he says, “While stress in the corporate sector showed some signs of moderation in 2015-16, the risks of lower demand and weaker debt servicing capacity continue.”

Talking about the agricultural sector, Rajan feels that normal monsoon augurs well for the economy, but adds, “The spatial and temporal distribution matter as much as the total quantum of rainfall.” “Given its large impact on broader political economy, the agriculture sector needs coherent policy measures to address sustained food price pressures and the overall rural distress,” he says.

According to Rajan, the global recovery remains fragile amidst weak and uneven growth, a slowdown in world trade and prevailing uncertainties in financial and commodities markets. “The unintended side effects of current ultra-easy monetary policies being pursued in many advanced economies – without any clear signs of an exit strategy, are becoming evident,” he cautions.

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