“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,” This was stated by RBI governor Raghuram Rajan while speaking at an interactive session at National Institute of Rural Development and Panchayati Raj. Rajan in his address touched on various issues including on how India would have to deal with China in the road ahead and the spate of farmer suicides in the country .
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. And on this rather tricky issue, Rajan had this point to say : “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” .
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.
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.
“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.