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India’s Central Bank chief warns against growing too fast

18 September 2015 06:30 pm - 0     - {{hitsCtrl.values.hits}}

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AFP - The head of India’s Central Bank yesterday  warned Asia’s third-largest economy against trying to grow too fast, pointing to the plight of recession-hit Brazil as a cautionary tale.

Reserve Bank of India governor Raghuram Rajan told a gathering of business leaders in Mumbai that the Asian giant must focus on “sustainable growth”, built on a bedrock of low inflation.

“Paradoxical as it may seem, Brazil tried to grow too fast,” Rajan said, noting that the South American country’s economy was expected to shrink three percent this year, five years after recording growth of 7.6 percent.

India, whose economy is expanding at around seven percent, is presently the best performer of the group of emerging markets known as the BRICS. Brazil and Russia are deep in recession and South Africa is teetering on the brink, while China’s economy saw its weakest performance in 24 years in 2014.

India “appears to be an island of relative calm in an ocean of turmoil”, Rajan said in the speech, adding that “our fellow BRICS all have deep problems”.
“The current difficulties of emerging markets stem from a complicated set of reasons, but an important one is impatience to regain growth by overemphasising old and ineffective methods of stimulus,” he said.

“Brazil may have overspent, China may have overinvested”.

Prime Minister Narendra Modi came to power last year promising to inject life into India’s economy, pledging a number of business-friendly reforms, and earlier this year its pace of GDP growth caught up with China’s.

While India’s commodities-dependent BRIC partners have been wracked by the recent global selloff in equity markets, India, which exports little, has benefited from a drop in world oil prices.

Rajan said Brazil’s rapid growth came on the back of “substantial stimulus” and suggested that pressure on the country’s central bank to reduce interest rates had fuelled a credit spree which consumers could not afford to repay.

The RBI, which has made controlling inflation a priority under Rajan, is itself under pressure from the government and business community to cut rates for a fourth time this year when it meets on September 29.

“We have to have the discipline to stick to our strategy of building the necessary institutions and creating a new path of sustainable growth,” Rajan said.
“For this, we need the understanding and cooperation of business, not impatience and pressure for quick impossible fixes,” he added.
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