Uncertainty and slow pace of economic reforms can come in the way of India's economic growth potential, Reserve Bank of India (RBI) governor Raghuram Rajan has warned, while listing out a raft of policy priorities which needed immediate attention.
"For a country as big and populous as India, reforms cannot be shots in the dark, subjecting the economy to great uncertainty and risk," Rajan said in an overview in the RBI's annual report that was released on Thursday.
"Wherever possible, we have to move steadily but firmly, ever expanding the scope of reforms while always limiting the uncertainty they create," Rajan commented in the governor's overview, the first ever in an RBI annual report.
"The Chinese term this 'Crossing the river by feeling the stones'... it is an appropriate metaphor to guide our own reforms," he said in an obvious reference that the government needed to press the pedal on key reforms to accelerate investments and growth, critical to spin jobs and multiply incomes.
On the proposed monetary policy committee (MPC), a yet-to-be set up joint government-RBI panel, Rajan said: "This is a welcome step forward in building the institutions.We need transparent and independent monetary policy."
A report last month stirred a controversy when it proposed that the MPC should comprise of seven members, four from the government. It had also proposed removing of the RBI governor's overriding powers on interest rate decisions, triggering a debate whether the government was trying to erode the central bank's autonomy.
The annual report also said that India's economic growth was below what the country was capable of, and inflationary pressures had not eased. The central bank would focus on bringing down inflation in line with the proposed glide path, Rajan added.
The RBI has set a retail inflation target of 6% by January 2016, and 4% by 2018.
The central bank also noted that lenders have been unwilling to reduce interest rates.