No market bubble, growth to pick up in 2 yrs: Rajan
The Indian economy has not yet reached a phase of strong growth but will improve over the next two years when measures taken to push the economy, including the stance on keeping interest rates high and the rupee stable, start bearing fruit, Reserve Bank of India (RBI) governor Raghuram Rajan said Friday.business Updated: Dec 27, 2014 00:45 IST
The Indian economy has not yet reached a phase of strong growth but will improve over the next two years when measures taken to push the economy, including the stance on keeping interest rates high and the rupee stable, start bearing fruit, Reserve Bank of India (RBI) governor Raghuram Rajan said Friday.
Allaying fears that the Indian stock market is overpriced – the benchmark BSE Sensex has gained 6,000 points or over 25% in 2014 despite slow economic growth – Rajan told NDTV at an interaction with students, “I don’t see a bubble in Indian markets. (There is) a high possibility that India grows reasonably strong over the next two years. Growth can’t be instantaneous.”
The RBI governor, who famously predicted the US sub-prime asset bubble bust that sparked a global economic slowdown in 2007, did not reveal if or when he would cut rates, as demanded by Indian industry, but said he didn’t want to flip-flop on rates. “I don’t think the RBI has missed the bus on cutting rates… It takes about three quarters before the effects of a rate cut begin to bear fruit. We will see a pick-up in growth… but it can’t be instantaneous,” he said.
“RBI is not against growth but we are looking for sustainable growth. Once the disinflationary process is well underway we will have the ability to be more accommodative in a sustainable way,” he added.
India’s GDP had grown at sub-5% in the previous two financial years. It grew at 5.3% in the September quarter, lower than the 5.7% seen in the June quarter, mainly due to a weak performance by the manufacturing sector. “Already there is a rise in capital expenditure, which can be seen in the value of tenders for new projects that has grown 2% from the previous year,” said Kotak Securities CEO Kamlesh Rao.
On the prospects for e-commerce, Rajan said that while there are tremendous possibilities in this industry, firms need to comply with regulations.
In saying so, he indicated the central bank’s tough stance on Uber Cabs, which has been facing the heat from regulators over safety violations.
“No matter who you are, (you) can’t violate regulations. New technology needs some adjustments in terms of regulations,” Rajan said at the televised programme.
Stating that the introduction of the Goods & Services Tax Bill, which is expected to be passed by Parliament in the budget session starting February, will be a big step forward, he said the government’s stand on fiscal consolidation will send a strong signal to investors that will help both in terms of inflation and interest rates.
“There are concerns about crony capitalism… (It) is a phase that every country has to go through,” said Rajan, reiterating the central bank’s view on promoters who borrow but don’t keep up repayment commitments. “Debt is a sacred contract. If you borrow, you have to repay. We make mistakes in a free market system.”