RBI acted in the right manner by raising interest rates in a calibrated manner, says Asian Development Bank?s managing director general Rajat M Nag. In an interview with FE?s Praveen Kumar Singh, he says India needs to focus on implementation in order to reduce the risks growth. Excerpts:
RBI has been raising interest rates very frequently in recent months to tame inflation. Do you think the government has done enough to meet the supply side pressures on inflation?
You have to manage growth, inflation and competitiveness, at the same time. I think RBI did the right thing by raising interest rates in a calibrated manner. I know they have done this frequently, but a part of inflation management. The government has to make sure that growth continues. It also has to make sure that inflation does not run out of bounds. At the same time, you don?t want to raise interest rates so much that you start to see huge capital inflows that ressurise the exchange rate. So, it is a delicate balancing act. And in the context of what they are doing, I must say they are doing it right.
Do you think that India?s long-term planning for growth is weak, since execution is always secondary?
I think the government?s infrastructure plans are in place and there will much more investment in this sector. So, the emphasis on infrastructure is appropriate. The emphasis on education is also appropriate, but the emphasis must be on the quality of education and not the quantity. In this context, I think you are right. Also, training and employability of people has to be stressed upon.
We have created a Right to Education Act. Does creating a law serve the purpose?
It is always good to have pressures coming from the legal side. But this provides just the impetus. The focus has to be on implementation. A law is not a bad thing to have, as it gives the overall framework. But the emphasis has to be on implementation.
What more should be done on the implementation side?
Accountability and governance are related. If you have a programme and the resources, make sure that somebody is monitoring it and if the results are not delivered, then somebody is held accountable. These are fundamental principles of governance that are sometimes overlooked.
There have been differences between various government bodies like the recent dispute between the road ministry and the Planning Commission. The environment ministry is also coming out with new programmes that hinder the plans of other ministries. What are your views on this?
These are part of a healthy debate in any system. I don?t have comments on specifics but I won?t consider that as negative at all. It?s a healthy governance act that should happen.
What is your growth and inflation forecast for this fiscal?
We have forecast 8.5% as GDP growth rate for India in 2010-11 and 7.5% is our projection for average inflation at the end of March 2011, y-o-y.