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18Th July 2016
Reserve Bank of India Governor Raghuram Rajan
believes the current value of the rupee is 'pretty reasonable' and devaluation
may not be the key to increasing exports. The Total Investment & Insurance Solutions
Any devaluation of the rupee will have inflationary
impact offsetting any benefits the economy may get from devaluation, Rajan said
here on Monday.
"My belief is that today's value of
rupee is pretty reasonable. I don't think we should emphasise moving one way or
the other as an answer to any problem," he said while answering questions
at a national seminar on 'Equity, access and inclusion - transforming rural
India through financial inclusion' at the National Institute of Rural
Development (NIRD) here.
He was asked if he feels any need to devalue
the rupee to increase exports from the country in view of current scenario of
global slowdown.
"Devaluation has lot of side effects
including the fact inflation will pick up in the county. You have to pay
significantly more for your imports and significantly more for oil. It will
have inflationary impacts which will offset any benefits you may get from
devaluation," he said. The Total
Investment & Insurance Solutions
The RBI governor pointed out that Brazil
failed to achieve tremendous expansion in exports despite significant
devaluation of currency.
"Currency is a complicated animal. In
the same way as a cheaper price for my exports may allow me to export more, it
also means my imports are costly. Often exporters import a lot what they
export. It is not obvious that just devaluing helps everybody," he said. The Total Investment & Insurance
Solutions
Rajan believes India has a long way to go and
needs strong sustained growth for many years to catch up with China's GDP per
capita.
He pointed out that China's GDP per capita
today is about four times that of India's. At one point in 1960s, both were at
the same level.
He said a few years of strong growth will not
help because there will be very slow growth after that. "We need sustained
growth which is why we need systems in place and we need macro stability in
addition to growth," he said
He, however, was of the view that just GDP
numbers are not enough to say that the country has developed. He said there
were many other factors like the harm done to environment which was not
measured by GDP.
"It would be good if we reach their
level of GDP without the kind of environmental damage that has occurred in some
parts of China and that is occurring in some parts of India. We have to have
environmentally sustainable development path but we will also benefit from
having equitable development path," he said while stressing the need for
financial inclusion.
"Equity ensures that every citizen rise
to his potential and benefits of growth are not captured by a few. We have to
make sure that capacity to grow is there for everyone," he added.
On farmers' suicides, Rajan said it was a
complex phenomenon and there was a need to work on all fronts. He called for
understanding the complex phenomenon and emphasising the need to make access to
credit easier.
He, however, said overlending was as much a
problem as access to credit.
"Part of answer is to expand
productivity and ability to generate income. We also need to have some
forgiveness in credit system and this has to be managed carefully. It has to be
done in such a way that it does not shut out credit. In cases where level of
debt is unmanageable, there should be some scope of relief," he said. The Total Investment & Insurance
Solutions
"We have to work on all fronts. It's not
just an issue of debt but also issue of livelihood, it's not just an issue of
economics but also of culture. It's a tragic phenomenon," Rajan added. The Total Investment & Insurance
Solutions
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