Wednesday, February 27, 2013

Raghuram Rajan emphasises the need to create jobs and depend on domestic investment

The Economic Survey 2013-14 tells a rather stark story of falling exports, falling savings, falling investment and falling growth. Chief economic advisor in the finance ministry, Raghuram Rajan, speaking to reporters on Wednesday afternoon, said that India was in a difficult situation, and borrowing a cricketing analogy said it was a sticky wicket. He was hopeful that India can handle it well but to do so it will have to certain things. The one he emphasised most was that of creating jobs. "Return to high growth looks improbable. We have to be wary of complacency," he said. He said between 2011 and 2030, those entering the job market would be between the ages of 30 and 49. He talked of 'seizing the demographic dividend" through shifting people away from agriculture and absorbing them in the manufacturing sector. He felt that if distortions in subsidies are removed, which is different from removing subsidies, this will result in fiscal consolidation. He did not think that food subsidy is bad and reminded that even in America there was subsidy through food stamps. What seemed to concern him more was not clearing major infrastructure projects which would boost economic activity. Asked whether in the background of the bleak global economic scenario, it was reasonable to expect foreign investment flows, he was of the view that investment opportunities in the West were not too many, and India could attract much of them if the big infrastructure projects get going. But he sounded a note of caution: It is not good to depend much on foreign investments, he said. He feels that foreign investments should not be more than 5 per cent of the GDP, and the rest of the investment should come from internal sources, through government, private sector and household savings. There has been a sharp decline in domestic savings, he said. He said that Foreign Direct Investment (FDI) was safe because it was long-term investment, that Foreign Institutional Investments (FIIs) were not so good, that External Commercial Borrowings (ECBs) should remain at around 2.5 per cent and anything more was not desirable. He said that at the moment the ECBs were at 5 per cent and it showed that it was possible to raise money abroad and tit also reflected demand for credit flows. He said that short-term foreign borrowings were bad and are to be avoided. Rajan was clear that investments should be generated from within the country by increasing the rate of savings, and that there is need for job creations to boost growth. Rajan and his associated disagreed that economic growth between 2004 and 2008 did not show rise in jobs. The Rajan team argued that 97.92 per cent of the people with the qualifications got jobs though it conceded that there was a decline in the rate of employment. They attributed this to the fact that the many people who opted out of the job market went to acquire fresh skills, especially the women. On the issue of food inflation, Rajan did not think that it was due to increase in food consumption in India though he agreed that there was increase in food consumption and that was a good thing. His associate said that the food inflation was due to the general increase in global food prices and that India was aligned to the world markets and that Indian commodity prices were catching up with world market prices.


Blogger said...

eToro is the most recommended forex broker for new and professional traders.

Blogger said...


Professional trading signals sent to your mobile phone daily.

Start following our signals right now & gain up to 270% daily.

Sense of the mandate

Congress and the BJP can never hope to dominate Karnataka Forming the government after an election is a necessary part of the democ...