RBI governor Raghuram Rajan in the central bank’s Financial Stability Report for the month of June says that India stands out globally in terms of relatively stronger growth and improved economic fundamentals. “However, we need to stay on the path of sound domestic policies and structural reforms,” Rajan says.
Talking about the way forward for India, Rajan says, “We need to deal with legacy issues that hold back growth and bring changes to enhance the efficacy of our business processes and conduct. The stress in the banking sector, which mirrors the stress in the corporate sector, has to be dealt with in order to revive credit growth.”
“The evolving framework for the domestic financial system needs to ensure efficient risk sharing, intermediation, as also effective transmission of monetary policy signals. Accordingly, this issue of the Financial Stability Report brings out a thematic discussion on ‘banks versus markets’ as we move towards a structure for the financial sector that best serves the real sector,” he says.
Rajan cautions, “Economies around the world are experiencing fragile and uneven growth recoveries, deflationary pressures in some parts and uncertainties emanating from possible shifts in the direction of monetary policy stance in some jurisdictions. In addition, geopolitical risks loom large.”
“Policy making in this challenging global environment could result in decisions that can have negative spillovers to other countries,” he adds.