‘Can’t keep blaming rates’: Raghuram Rajan says India’s investment revival needs more than RBI cuts

The former governor of the India Reserve Bank (RBI) Rajher Rajan said that the recent discounts in interest rates by the central bank are not a “magic bullet” that automatically leads to a wave of investment in the private sector, as multiple structural factors continue to influence commercial morale.

“The interest rates were an argument,” Rajan told PTI videos, adding that “interest rates were an argument, but I do not think it can be an argument anymore.”

On June 6, the RBI monetary policy committee, headed by Governor Sanjay Malhotra, cut the standard ribo rate by 50 basis points, with a total reduction to 100 basis points in recent months. She also conveyed her position on politics from “equal” to “neutral” and declared liquidity pumping measures to support growth.

But Rajan, a current financial professor at Bath School at the University of Chicago, said that more is needed to stir investment. He said: “Some other factors, including creating more transparent playing types and creating more competition in a number of sectors, will urge the industry to be less spike and more focused on investment to maintain its advantage.”

He pointed to the long -term trends that show that Indian companies have declined sharply from capital spending since the pre -2008 break. “They have become more cautious, and they cannot continue to say this is the state of the local economy – earlier, they were saying that the lower middle class is not spent, and rural areas are not spent. Now it was turned. It is the upper middle class that does not spend,” Rajan noted.

The Ministry of Statistics data shows that the private sector’s share in the total formation of fixed capital in India (GFCF) decreased to its lowest level in 11 years of 32.4 % in the 24th year. When asked whether the cuts in the last prices will lead to companies investment, Rajan replied, “I hope that more companies’ investments are coming ”, but warned that interest rates alone are not the solution.

On the inflation front, Rajan said the economy is “a very comfortable situation.” Consumer price inflation (CPI) decreased to 2.1 % in June -the lowest year -based number since January 2019 -with food enlargement to -1.06 %. Assuming that natural monsoon winds, RBI expected inflation by 3.7 % for the 26th year.

However, Rajan noted that basic inflation is still higher than the main consumer price index and should be closely monitored. “I would also like to look at the basic inflation at such times, just to satisfy myself that the motivation is inflation in all fields,” he said.

When asked if there is more space for price discounts, Rajan refused to comment on the future procedures of RBI, but he added, “The interest rates at this stage are not excessively high after the price discounts by RBI, and we will have to wait for more time to know how to play things.”

Rajan also responded to recent concerns about an increase in the net foreign direct investment. He said: “Foreign direct investment is complicated. Not only people put money on the ground in green fields projects. Sometimes they come out in terms of profits, etc., it is considered negative on foreign direct investment.”

He added that India should do more to take advantage of the transformation of “China in addition to one” in global manufacturing. “We must get more of this type of foreign direct investment. Of course, India must get foreign direct investment, which seeks to find a place for good logistics but reasonable workers – like some southern states attract this type of foreign direct investment.”