Regulate growth, not deter enterprise: Raghuram Rajan

23 May 2016

Reserve Bank governor Raghuram Rajan has called for a benign regulatory environment that would foster enterprise than thwart the growth of industry.

Calling for a better business environment for start-ups, the RBI governor said while the country has succeeded in doing away with `licence raj' another equally distracting `inspector raj' continues to some extent.

Rajan suggested an easier set of regulations for small and medium enterprises in India, including a system of self-certification with some checks on the part of the authorities to prevent any misuse.

Rajan cited examples of the UK and Italy saying, "We have seen that while regulations are liberal in United Kingdom, it is very heavy in Italy. It is seen that the start ups in the UK grow faster than their Italian counterparts."

Addressing ministers, bankers, bureaucrats and other stakeholders at the 4th Odisha Knowledge Hub, the RBI chief also said Indian economy is in the midst of recovery but some areas are still under stress.

"Indian economy is in the midst of recovery. However, some areas are still under stress and need to be focused in order to get them better."

A good monsoon will be helpful for the growth of the economy, Rajan added.

Stating that structural reforms are important for elevating the potential of economy, the RBI governor said degree of competition and level of participation of different segments of society should be raised in order to bring more and more people into the workforce.

However, it may be difficult politically to speed up structural reforms and while labour market reforms can boost growth, the process may draw opposition, the governor said.

Describing a good policy as the first line of defence for the economy, he said in order to ensure safe borrowings, the country should try to opt for long-term borrowings instead of short-term ones.

On the need for intervention in the realm of exchange rate to reduce volatility, Rajan said the country's foreign exchange reserve has gone up to $360 billion, which can also be described as a strong line of defence for Indian economy in the context of adverse global scenario.

''We are now fairly safe against global volatility, provided we continue maintaining this policy,'' he said, adding that Indian economy is not as vulnerable now as it was in 2013.

Stating that there may be uncertainties because of the policies of other countries and volatile international market, he said India, which remains largely protected and vigilant, should focus on building a strong policy.

On evolving new rules of the game for international monetary policy, Rajan said emerging markets should try to present their ideas on different issues, like getting more IMF quota, before international fora.

There should be a more responsible global monetary policy that follows rules of the game, he said, adding that a number of countries are now blaming each other over adoption of aggressive policies.

He also said that contrary to general belief, experiences in some countries show that low interest rates can lead to high savings instead of pushing investment.

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