India no longer a problem economy: Raghuram Rajan

Written by PTI | Mumbai | Updated: Aug 6 2014, 04:05am hrs
Reserve Bank Governor Raghuram Rajan today said India has emerged from the perception of being in crisis and has placed itself as a better place to remain invested.

"I keep telling the international fora that India is not a problem any more. I think there was a perception problem (last year), but I think today that perception also doesn't exist," Rajan said during the customary post-policy interaction with mediapersons at RBI headquarters here.

The central bank chose to keep all the key policy rates unchanged, except cutting SLR by 50 basis points to infuse liquidity.

Rajan also said formation of a stable government at the Centre has strengthened the country's position among overseas investors.

"Political stability to my mind is worth a tremendous amount, as far as the external situation goes and that is a big change," the Governor said, adding both the government and RBI have together tried and improved the macro fundamentals.

Rajan said the fiscal deficit has been kept on a glide path as suggested by the government, the current account deficit has come down from 4.7 per cent of GDP in FY 2013 to 1.5-2 per cent as of today, and the forex reserves have also become healthier and it was well prepared to deal with the inflation.

"I think the expectation that we will confront and deal with inflation is much stronger now than it was earlier," Rajan noted.

The Governor said one of the major concerns that investors have is that whether RBI will take away the benefits from the Indian growth story from them by inflating and thereby depreciating the rupee.

"No, we have no intent of doing that. We want to bring inflation under control and more like the inflation in other countries so that the rupee is not seen on a continuously weakening path," said the Governor.

When asked about the risks which could arise from the possibility of increase in interest rates and reversal of fund flows, he said: "When the perception of interest differential changes and money starts flowing back, who, in Warren Buffet's phrase, is naked, will be found out then. But, for sure I don't anticipate that it would be us."

"When interest rate starts turning, I do expect that people will revisit their investment allocations and try and figure out where they want to pull out from. I would hope that at that time they would see enough signs in our economy to understand that probably it is one of the better places to put money," the Governor added.

He, however, admitted that some initial volatility could occur but that would not be on a long-term basis given our improved macroeconomic fundamentals.

In the third bi-monthly monetary policy document, Rajan held on to the 5.5 per cent GDP growth projection today, but added that it many move upwards to 6 per cent.

"The implementation of government policy actions that have been announced should create a congenial setting for a steady improvement in domestic demand and supply conditions," the RBI said, adding sentiments on economic activity appear to be reviving, as there are early signs of modest strengthening of corporate sales and business flows.

"Prospects of re-invigoration of growth have improved modestly...the central estimate of real GDP growth of 5.5 per cent within a likely range of 5 to 6 per cent for 2014-15 can be sustained," the RBI said.