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Check Out Raghuram Rajan's Eye-Popping Admonition Against 'Import Substitution'!

By Priti Kumari

On a web telecast, organized by the Centre for Financial Studies at Bhavan's SPJIMR, the former RBI governor Raghuram Rajan, warned Indian government about the alarming repercussions of the 'import substitution under Atma Nirbhar Bharat. He asserted, 'in order to export, one needs to import'. Import Substitution refers to the trade policy when the government bids to mitigate its foreign dependency by replacing foreign imports with domestic production.

Rajan proclaimed, "If the focus under Atma Nirbhar Bharat is on import substitution by erecting tariffs, which we have done a lot of in the last few years, then I think it is a direction we have tried before and it has failed. I would caution against going in that direction. Commenting on the country's financial sector”.

Ranjan said, "It is pathetic that at 50% credit to GDP, we still don't have a healthy financial system. We are failing both in quantity as well as in quality. How much of that is temporary and how much of that is longer-term is hard to understand and which is why I think the RBI is in wait-and-watch mode".

Speaking about the retail inflation, he stated, at 7.34% it is on the higher side. Further, Rajan accentuates the dire need to understand critics point of view in a democracy. "People, critics, opposition parties have some ideas and if you could build more consensus in them...you make sure they are rolled out in a more effective way. I am not saying one needs to debate forever...but it is important in a democracy to build that consensus," he added. Asserting the consequences of lingering lockdown, he said, If a number of firms have shut down never to reopen again, the supply side of the economy is affected. If a number of firms have shut down never to reopen again, the supply side of the economy is affected. If a number of households have stopped sending their kids to school because they can't afford to do so, that again inhibits our growth potential for the future as these are going to be poorly educated kids who are going to be capable of much fewer quality jobs".

Talking about GOI's present step, he affirmed, "I think it is good to keep an eye on the overall spending and to be careful. This is not the time to have a free cheque book. But targeted spending can repay a lot of it is done wisely and carefully". When asked about the monetary policy, he denied to comment but added that RBI's current policies are very much friendly.

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