He further said that the main objective of the budget is to put the economy on a sustainable high growth trajectory.
“But just growth is not enough. We need to ensure that the benefits of growth are widely shared, which means we need to focus on reducing inequality,” Subbarao added.
According to him, the huge consumer base of the bottom half of India’s population is the country’s biggest growth driver.
“The only sustainable way to increase the consumption of the bottom half is through job creation,” Subbarao said, adding that as they earn more, they spend more, which in turn leads to more production, employment and growth. Ta. The former central bank governor pointed out that if the US-China trade war intensifies, potential investors will look elsewhere for their investments. We must act together.” He emphasized the need to focus on the MSME sector and labor-intensive exports to boost job creation.
Replying to a question on the weaker rupee, Subba Rao said he believes the level of the local currency is likely to be in line with the fundamentals of the economy.
“Today’s rupee is overvalued in real terms, hurting our export competitiveness,” he said, adding that allowing the rupee to weaken would boost exports, thereby boosting growth. .
To be sure, Subbarao said that while there is a possibility of inflation, the coefficients suggest that the net effect on the balance of payments will be positive.
“Furthermore, President Trump’s policy of intimidation is likely to keep the dollar strong for an extended period of time, and trying to preserve the rupee in such a situation would be self-defeating,” he said.
He said the RBI’s policy was to intervene in the market to check “excessive” volatility, rather than targeting a specific exchange rate.
“There are strong grounds for the RBI to follow through on its word,” Subbarao stressed.
The rupee is currently trading against the dollar. On January 13th, the closing price hit an all-time low of 86.70.
Replying to a question on the resurgence of freebies, also known as freebies, he said the culture of freebies is on the rise as the central and state governments and all political parties are equally responsible.
“It is not clear whether this competitive populism will pay off in terms of votes, as all political parties are in this game, but especially since these so-called freebies are funded by borrowed money. It will cause a huge financial burden,” Subbarao said.
In poor countries, where millions of people struggle to earn a decent living, transfer benefits to the most vulnerable groups are understandably necessary, even mandatory, but competitive Populism, he said, is fiscally dangerous and perhaps even harmful for the country in the long term. growth and welfare.
“A while ago, the prime minister condemned the Lebdi culture but he did not follow up on it,” Subbarao said, adding that given the pressure of vote bank politics, no political party will voluntarily adopt restraint. added.
He said the Center needed to take the lead.
“To bring some discipline to this, it would be great if the finance minister took the lead and announced in the budget that the government would enter into dialogue with state governments and all political parties and agree a code of conduct on freebies. Dew,” Subbarao said. he suggested.
Political parties announced giveaways during the recent elections in Maharashtra and are promising freebies again ahead of the Delhi elections.
Replying to a question on the proposal made in the 2023-24 Economic Survey to exclude food inflation while setting benchmark interest rates, he said he thought it was inappropriate for India’s situation.
“Firstly, food is a big part of India’s consumption basket.Food prices are what people experience in the market.
“It’s food prices that shape inflation expectations. If the central bank’s monetary policy committee ignores that and targets esoteric variables like core inflation, the MPC and the central bank lose credibility. There is a risk of losing it.”
According to Subbarao, if inflation persists long enough, whether due to demand pressures or supply shocks, the influence of inflation expectations will disappear and inflation will become the norm.
“If food inflation falls outside the framework of inflation targeting, our inflation management is likely to be headed in the wrong direction,” he said.
V Ananta Nageswaran, chief economic advisor for the Economic Survey 2023-24, said monetary policy has no impact on food prices, which are driven by supply-side pressures, and said monetary policy has no impact on food prices, which are driven by supply-side pressures, adding that interest rate setting decisions He insisted that inflation be excluded.
Food accounts for 46% of total consumer price inflation.
The benchmark policy rate is determined by the RBI on a bi-monthly basis based on movements in the consumer price index, which includes food, fuel, manufactured goods and some services.
