C Rangarajan supports Central Bank's hawkish stand on inflation

19 Sep 2022 , 09:20 AM

Former RBI Governor C. Rangarajan argued in favour of continuing the Reserve Bank of India’s current hawkish posture to contain inflation and predicted that the rupee would rise with the restart of capital inflows. In order to reach the goal of a $5 trillion economy, he added, the nation must grow at an average rate of 8 to 9% annually for the following five years.

The former RBI governor said he would be pleased if the nation’s economic growth reached 7% in the current fiscal year while delivering the Samar Kanti Paul Memorial Lecture on Saturday night at the Ramkrishna Mission Institute of Culture.

“The existing course of action should be maintained. Developed nations are likewise raising interest rates dramatically. More rate increases are likely, “Rangarajan stated without going into any detail on a specific number.

With rate increases to control inflation, the RBI has continued to take a hawkish position.

The 90-year-old economist was asked about the trajectory of the rupee and stated that due to capital outflow, the rupee’s value versus the US dollar fell sharply to Rs79—80.

After months of nonstop selling, there was a positive inflow of Rs22,000 crore from foreign portfolio investors in August 2022.

Rangarajan emphasized the necessity of raising the investment rate to 33% from its current level of 27—28% in order to achieve a greater growth rate.

Rangarajan stated that the reform initiatives implemented in the 1990s were “well-coordinated and had a composite character,” and that reforms must continue in diverse sectors like power and farm marketing.

He encouraged the government to address problems with embracing new technology and problems with creating jobs.

Rangarajan gave the example of how converting to electric vehicles may be advantageous in terms of a decrease in the usage of fossil fuels, but the nation may need to import other products for EVs. On the other hand, he continued, “the current ecosystem may have a significant impact on employment.”

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