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Raghuram Rajan cautions Arun Jaitley on deficit

Rajan said Brazil is confronted with financial problems because it tried to grow too fast on the back of substantial stimulus.

New Delhi: RBI governor Raghuram Rajan on Friday cautioned the government against boosting GDP growth through additional debt, saying that any deviation from the fiscal consolidation path will hurt stability of the economy.

He said that it is to the immense credit of the government that in today’s troubled time India has over seven per cent growth, low inflation, and a low current account deficit. “But it is at such times that we should not be overambitious,” he said.

Dr Rajan said that macroeconomic stability during the global turmoil cannot be risked and the government and RBI should continue to bring down inflation. “As Brazil’s experience suggests, the enormous costs of becoming an unstable country far outweigh any small growth benefits that can be obtained through aggressive policies. We should be very careful about jeopardising our single most important strength during this period of global turmoil — macroeconomic stability,” he said.

Mr Rajan said Brazil is confronted with financial problems because it tried to grow too fast on the back of substantial stimulus. “It is possible to grow too fast with substantial stimulus, as we did in 2010 and 2011, only to pay the price in higher inflation, higher deficits, and lower growth in 2013 and 2014.”

Mr Rajan said country already has high consolidated fiscal deficits, while recent power reforms would likely pressure finances of states.

He pointed out that there is a discussion on whether India should yet again postpone fiscal consolidation path with some arguing that it could lead to higher growth.

( Source : deccan chronicle )
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