While indications are that the country’s economy is set to grow at a handsome rate this year, the Prime Minister’s economic advisor, Raghuram G. Rajan has breathed a word of caution: don’t take growth for granted.
“So far we have had good and effective macro economic policies, but do not take growth for granted,” Rajan said, while speaking with Hindustan Times.
According to finance ministry projections, India will clock an 8.5 per cent growth in 2010-11. The International Monetary Fund (IMF) last month pegged its projection at an even more optimistic 9.5 per cent.
The high growth rate is also seen as likely to continue for the next few years, but Rajan said policymakers must be careful while carving out strategies.
“Politics can always intervene and if we get bad policies, things can fall out,” he said. Rajan added that the financial sector in India has shown resilience, especially at a time when the global economies tumbled.
Appropriate regulation — meaning neither over-regulation nor under-regulation — is key to the problem, he said, adding ‘super regulation’ may prove to be miserable for the system. The Indian banking system has stood tall even at a time when most countries have faced challenges with their financial sector.
“We are not moving towards any super-regulatory structure — all we are trying to do is to iron out differences between the various regulators we have today and to ensure that there is no overlap,” Rajan said.
Rajan also said that at this stage, with several reform processes on the cards, the credibility of the government authorities is a crucial factor. Finance minister Pranab Mukherjee has said that India should be able to achieve double-digit growth in the near future.
The economist said financial inclusion would be critical to achieve sustainable growth.