Things will look up when consumers are enthusiastic: Raghuram Rajan

Thinking of growth in a time of uncertainty is not that useful as we can’t put a precise number on it. We need to look beyond the headline number and look at measures we have to take to revive growth. What we can say is that we are doing all our efforts to try and rectify our growth path. Things will start looking up when consumers try to become more enthusiastic,people feel more confident about their jobs,rural spending rises,and people start becoming a little more adventurous. Those things are yet to happen.

Unemployment numbers are becoming sticky. Is it a manifestation of the slowdown?

Unemployment gets emphasised when we hear that some one has lost their job. The bigger problem is not finding a new job. So we need to improve our investments and get more projects off the ground,as that is where employment is generated. We need to change the mood to one where demand and supply start picking up.

What are the measures that will fuel such a change?

If we get some signs of pick up in projects being announced that will show people are confident enough to invest. Also,some downward shift in inflation numbers,especially core inflation would also be very positive for the economy. The strengthening rupee would also help as in the short run it reduces the rupee value of our import bill. Given that our twin deficits are large,it is important. Also a rise in the stock markets helps change the mood as it is a leading indicator in terms of the hopes of the investors.

Economists including former finance secretary Vijay Kelkar have said that the Budget numbers are underestimated…

Let’s not jettison the entire numbers but we should do our level best to meet the ultimate net number. We can make progress on this by reducing subsidies,increasing disinvestment and raising more revenues. You can’t increase taxes in the middle of the year so improving tax collection efficiency is essential. In the longer run,the GST and the DTC will help.

What is your view on the growth versus inflation debate? Is there a tradeoff?

In the long run,high inflation does impact growth,as it creates a lot of uncertainty. As the ability to protect against high inflation is relatively weak for the weaker sections,it becomes a problem not only for growth,but for distribution as well. How do we bring down inflation? There are two components — one is supply side where consumption of milk,eggs,pulses other proteins are increasing. And we need to work very hard on this. But core inflation is on the rise,and is creeping into various kinds of other costs and is pushing up prices of other items. Here the RBI can work on some demand management. Ultimately,there is no trade off between growth and inflation. I think both can go together — we can have high growth and low inflation.

Can we expect below five per cent inflation?

The standard response to supply side constraints is to accommodate it. We have to make people recognise that this is in short supply and they can’t buy as much. So we may still be able to keep it under 5 per cent even though some elements of food are going up. That would be the rationale for long term policy.