Governor, Reserve Bank of India, Raghuram Rajan, on Saturday, stated that country needs partial depreciation in currency to avoid being uncompetitive over other economies as RBI keeps on fighting to reduce inflation rate.
At an event to honor the 14th Memorial of KP Hormis, founder of Federal Bank, in the evening, Raghuram Rajan said, “Until we get inflation down again, we are aimed to get it down to the lowest possible and we need a specific amount of depression in rupee to ensure that we get competitive edge”. However, the governor stated that the RBI is not intended to depreciate rupee in steady way. They are focused on bringing the inflation down so people will not be worried about the weak position of rupee in international market.
Rupee is actually flat if you consider the actual exchange rate currently. Simply speaking, rupee has not been depreciated in actual terms against the international currencies. Over the past few years, we have been too flat. He explained it further that you shouldn’t just compare it with dollar.
Rajan Suggests Not to Overspend
Raghuram Rajan further suggests that both RBI and the government must keep on bringing the inflation down and macroeconomic stability must not be risked during the international turmoil. He cautioned the government against overspending to promote economic growth a month after Union Budget. He explains with the example of Brazil which is another growing economy witnessing trouble these days. The huge cost of being an unstable economy outweighs all small growth benefits so far, which a country can get through best policies.
While delivering a lecture at C D Deshmukh Memorial in New Delhi, he said, “Sadly, the growth multipliers on the spending of government at the juncture may be a lot smaller. So, if they overspend, it will hurt the economy.” According to him, the country was grappling already with the rise in financial deficit on the last calendar year because the power reforms scheme which is just implemented would strain stage government’s finances in next financial year.
He also explained that central bank is not in the verge to change its financial policy strategy in dealing with inflation. It is because doing it may hurt the credibility of policy. We must be careful a lot about jeopardizing our macroeconomic stability, our only important strength in this era of global turmoil.
According to him, the consolidated financial loss of the states and Centre had grown up by 7.2% in 2015 from 7% in last year. So, we enhanced the aggregated loss over the past year. With a scheme to restore power distribution companies, UDAY, coming in next financial year, there are fewer chances that stats will shrink their economic deficits. It will put pressure on Central Government to do more adjustments.
Arun Jaitley, Finance Minister, redrawn the roadmap of financial consolidation and it stretched the time to access the 3% of financial deficit figure of GDP over 2 to 3 years and to settle the financial deficit at 3.9% for the financial year 2015-16.