The_Sidewinder
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NEW DELHI: Ahead of NDA's first
full-fledged budget in February next
year, Reserve Bank of India Governor
Raghuram Rajan called for more tax
sops for households to encourage
them to set aside more money and
boost the country's flagging savings
rate as he urged companies and
policymakers to look inward as much
as they're looking outward to
strengthen the Indian economy and
shore up its finances.
He said that the Narendra Modi
government's 'Make in India'
manufacturing initiative should not
be read too narrowly as merely
seeking to mimic the export-led
growth strategy followed by China.
Instead, he proposed a more open
idea that focused on making Indian
business more competitive.
"Make in India will typically mean
more openness, as we create an
environment that makes our firms
able to compete with the rest of the
world, and encourages foreign
producers to come take advantage of
our environment to create jobs in
India," Rajan said as he floated the
idea of 'Make for India'. "If external
demand growth is likely to be
muted, we have to produce for the
internal market." The governor also
wondered whether there was a need
for more institutions to "ensure
deficits stay within control and
quality of budgets is high". Rajan
was delivering the Bharat Ram
Memorial Lecture at FICCI in Delhi
on Friday.
The governor pointed out that tax
benefits for individuals had been
largely fixed in nominal terms until
the recent budget, implying that
after adjusting for inflation the
value of the benefits had eroded
over the years.
The Modi government had in its July
10 budget for FY15 raised the
exemption limit on savings by Rs
50,000 to Rs Rs 1.5 lakh. The
governor felt there was a case for
enhancing this incentive."Some
budgetary incentives for household
savings could help ensure that the
country's investment is largely
financed from domestic savings,"
Rajan said, adding that local
demand should be financed as far as
possible through domestic savings.
He said low and stable inflation and
launching new institutions and
products to seek out financial
savings in every corner of the
country will also help halt the
erosion in the household savings
rate.
The household savings dropped to
21.9 per cent of GDP in FY13 from
25.2 per cent in FY10, largely
because of a decline in financial
savings to 7.1 per cent from 12 per
cent over the same period.The
government has already re-launched
the Kisan Vikas Patra savings
instrument and the ambitious
Pradhan Mantri Jan Dhan Yojana
(PMJDY) to raise financial savings.
PMJDY is aimed at ensuring all
Indians have access to the banking
system. With regard to the Make in
India initiative, Rajan pointed out
that a slowing world economy is not
in a position to absorb substantial
additional imports.
"There is a danger when we discuss
Make in India of assuming it means
a focus on manufacturing, an
attempt to follow the export-led
growth path that China followed. I
don't think such a specific focus is
intended," Rajan said, adding that
industrial countries were themselves
improving capital-intensive flexible
manufacturing that had even caused
some work that had been outsourced
earlier to be "re-shored".
India will also have to compete with
China as it pushes into global
exports. Make in India should also
not be seen as an import-
substitution programme, Rajan
said."This strategy has been tried
and it has not worked because it
ended up reducing domestic
competition, making producers
inefficient, and increasing costs to
consumers," the RBI governor said.
Rajan urged the implementation of
measures including the goods and
services tax (GST) for the creation of
the "strongest sustainable unified
market'."We are more dependent on
the global economy than we think.
That it is growing more slowly, and
is more inward looking, than in the
past means that we have to look to
regional and domestic demand for
our growth - to make in India
primarily for India," he said.The
governor said India needed to get
its policy framework right because it
did not belong to any power blocs.
Crucial to this was "a sound fiscal
framework around a clear fiscal
consolidation path", he said as he
called for debate on how this could
be achieved.
"Whether we need more institutions
to ensure deficits stay within control
and the quality of budgets is high,
is something worth debating," Rajan
said. "A number of countries have
independent budget offices/
committees that opine on budgets.
These offices are especially
important in scoring budgetary
estimates, including unfunded long-
term liabilities that the industrial
countries have shown are so easy to
contract in times of growth and so
hard to actually deliver."
Need to rethink 'Make in India'; must strengthen Indian economy from within: Raghuram Rajan - The Economic Times on Mobile
full-fledged budget in February next
year, Reserve Bank of India Governor
Raghuram Rajan called for more tax
sops for households to encourage
them to set aside more money and
boost the country's flagging savings
rate as he urged companies and
policymakers to look inward as much
as they're looking outward to
strengthen the Indian economy and
shore up its finances.
He said that the Narendra Modi
government's 'Make in India'
manufacturing initiative should not
be read too narrowly as merely
seeking to mimic the export-led
growth strategy followed by China.
Instead, he proposed a more open
idea that focused on making Indian
business more competitive.
"Make in India will typically mean
more openness, as we create an
environment that makes our firms
able to compete with the rest of the
world, and encourages foreign
producers to come take advantage of
our environment to create jobs in
India," Rajan said as he floated the
idea of 'Make for India'. "If external
demand growth is likely to be
muted, we have to produce for the
internal market." The governor also
wondered whether there was a need
for more institutions to "ensure
deficits stay within control and
quality of budgets is high". Rajan
was delivering the Bharat Ram
Memorial Lecture at FICCI in Delhi
on Friday.
The governor pointed out that tax
benefits for individuals had been
largely fixed in nominal terms until
the recent budget, implying that
after adjusting for inflation the
value of the benefits had eroded
over the years.
The Modi government had in its July
10 budget for FY15 raised the
exemption limit on savings by Rs
50,000 to Rs Rs 1.5 lakh. The
governor felt there was a case for
enhancing this incentive."Some
budgetary incentives for household
savings could help ensure that the
country's investment is largely
financed from domestic savings,"
Rajan said, adding that local
demand should be financed as far as
possible through domestic savings.
He said low and stable inflation and
launching new institutions and
products to seek out financial
savings in every corner of the
country will also help halt the
erosion in the household savings
rate.
The household savings dropped to
21.9 per cent of GDP in FY13 from
25.2 per cent in FY10, largely
because of a decline in financial
savings to 7.1 per cent from 12 per
cent over the same period.The
government has already re-launched
the Kisan Vikas Patra savings
instrument and the ambitious
Pradhan Mantri Jan Dhan Yojana
(PMJDY) to raise financial savings.
PMJDY is aimed at ensuring all
Indians have access to the banking
system. With regard to the Make in
India initiative, Rajan pointed out
that a slowing world economy is not
in a position to absorb substantial
additional imports.
"There is a danger when we discuss
Make in India of assuming it means
a focus on manufacturing, an
attempt to follow the export-led
growth path that China followed. I
don't think such a specific focus is
intended," Rajan said, adding that
industrial countries were themselves
improving capital-intensive flexible
manufacturing that had even caused
some work that had been outsourced
earlier to be "re-shored".
India will also have to compete with
China as it pushes into global
exports. Make in India should also
not be seen as an import-
substitution programme, Rajan
said."This strategy has been tried
and it has not worked because it
ended up reducing domestic
competition, making producers
inefficient, and increasing costs to
consumers," the RBI governor said.
Rajan urged the implementation of
measures including the goods and
services tax (GST) for the creation of
the "strongest sustainable unified
market'."We are more dependent on
the global economy than we think.
That it is growing more slowly, and
is more inward looking, than in the
past means that we have to look to
regional and domestic demand for
our growth - to make in India
primarily for India," he said.The
governor said India needed to get
its policy framework right because it
did not belong to any power blocs.
Crucial to this was "a sound fiscal
framework around a clear fiscal
consolidation path", he said as he
called for debate on how this could
be achieved.
"Whether we need more institutions
to ensure deficits stay within control
and the quality of budgets is high,
is something worth debating," Rajan
said. "A number of countries have
independent budget offices/
committees that opine on budgets.
These offices are especially
important in scoring budgetary
estimates, including unfunded long-
term liabilities that the industrial
countries have shown are so easy to
contract in times of growth and so
hard to actually deliver."
Need to rethink 'Make in India'; must strengthen Indian economy from within: Raghuram Rajan - The Economic Times on Mobile
