RBI's Raghuram Rajan cautioned against the Narendra Modi government's 'Make in India' mantra; suggesting that regional and domestic growth be key focus areas rather than an export-driven strategy.
Delivering the Bharat Ram Memorial Lecture in New Delhi, Rajan said an export oriented strategy for growth, given the current circumstances, would prove ineffective, as the industrial world is facing stagnation, forcing other emerging markets to also reconsider their export-driven strategies.
Make in India - Primarily for India
He said 'Make in India,' does not have to mean an 'increased focus on manufacturing,' trying to replicate China's export-led growth path, but emphasised that the continued depression in the global economy was unlikely to be able to absorb any further significant imports in the foreseeable future.
He pointed out that an export-led growth will not be as easy for India as was the case with other Asian economies, who took the path earlier.
Inflation and GST
The RBI is likely to discuss with the government on a timeline to take the economy within the inflation band of 2% to 6%, he said.
Dr.Rajan articulated his agenda for achieving higher growth, recommending the government to reduce red tape; increase focus on making it easier to do business in India; ensure a quick rollout of the Goods and Services Tax bill (GST) and to improve norms that would help banks recover stressed loans.
Reducing state border taxes, through a well designed GST bill, would help create a 'truly national market for goods and services,' a critical aspect required for future economic growth, he said.
With a muted external demand, India's local production could still profit from increasing internal demand.
Dr.Rajan noted that India would have to work on creating the 'strongest sustainable unified market,' which needs a significant reduction in the cost of transaction across the country.
The 'arbitrary' nature of numerous inspectors holding the power to close down business and aided by petty bureaucrats, strengthened by the myriad mysterious regulations, turns them tyrants, Rajan noted, stressing that the government's ambition to reduce the cost of doing business in India would need the present scenario to change to one that assists business rather than hinder it.
Help Banks Recover Stressed Assets
Referring to the courts, the government and the Reserve Bank itself, the Governor said, "We should not make banks' task harder by creating impediments in the process of turning around, or recovering, stressed assets."
India needs to invest in idea-producing institutions including research departments of official local bodies, think tanks and universities, Rajan added.