Reserve Bank governor Raghuram Rajan did well to reassure the markets that there is growth despite the volatility seen in the industrial production numbers released on Friday. Growth, as he acknowledged, may not be as strong as we would like, but it is there due to mcroeconomic stability. This is underlined by the stability achieved by the government’s fiscal policy, specially with the government’s commitment to implementing the fiscal deficit targets in the Budget for this year and the next. The central banker acknowledged this as he mentioned that he backed the government’s fiscal management reforms and rural job creation programme.
It is interesting that he said he and the government were on the same page, that should silence those wishing to draw a wedge between Dr Rajan and the government on the issue. Of course he kept the markets and others guessing whether he would cut interest rates. Interestingly, he also came out unequivocally in support of another contentious issue, the monetary policy committee to be constituted by the government, which he was a little sceptical about when it was first proposed. On Friday he said the monetary process would benefit from this committee, of which three members would be picked by the government, three by the RBI and the governor would break the tie. It is important to note that when the rest of the world is hit by high or low inflation, fiscal deficit and current account deficit and slow growth, India has controlled this and this is no mean achievement. This has helped India to weather two deficit monsoons and the inhospitable global climate.
This would have thrown the economy in a tailspin earlir but the economy grew at over seven per cent. The IIP numbers were pulled down by 1.5 per cent in January due to sliding manufacturing production but are neither consistently down like export figures nor consistently up.
The various reforms announced by the government and the others in the pipeline should help to give a push to manufacturing. Prime Minister Narendra Modi also reiterated that further reforms would be implemented. It is vital that the PM takes a personal interest in getting these reforms through — they will not only facilitate the ease of doing business but also make or break his visionary “Make in India” programme. India does not lack entrepreneurs. They are only hampered by archaic, cumbersome laws and processes; and, most important, by the corruption at lower levels. Mr Modi must take the states to task on this, as some like Maharashtra are still wanting in transparency and the speed of decision-making.
