Warning against being "euphoric" about India being the fastest-growing economy, RBI Governor Raghuram Rajan today sought to contextualise his "one-eyed king" remarks about India's growth and said the country has a long way to go before it claims to have arrived.
"As a central banker who has to be pragmatic, I cannot get euphoric if India is the fastest growing large economy," he said.
Seeking to explain his 'one-eyed king' comments, Rajan said his comments were "hung out to dry out of context" and even offered an apology to the visually-impaired for hurting them by the use of the proverb.
Stating that the per-capita income of Indians remains lowest among BRICS, Rajan said, "We have a long way to go before we can claim we have arrived. We need to repeat this performance (economic growth) for 20 years before we can give each Indian a decent livelihood."
He also said India's global reputation holds great promise, but is seen as a country that has under-delivered and that it should "implement, implement, and implement" the structural reforms.
Speaking at the convocation of National Institute of Bank Management, Rajan said India is yet to achieve its potential growth though it is on the cusp of that and a substantial pick-up in growth can be achieved with pending reforms.
Making a reference to his last week's interview to a foreign publication where he likened India being the fastest-growing major economy to a case of the one-eyed man being king in the land of the blind, Rajan said his comments were interpreted as having denigrated the country's success rather than emphasising on the need to do more.
"... Every word or phrase that a public figure speaks is intensely wrung out of meaning. When words are hung out to dry out of context as in the newspaper headline, it only becomes a fair game for anyone who wants to fill in, meaning to create mischief," he said.
Finance Minister Arun Jaitley had rebutted Rajan's remarks, saying compared with the rest of the world, the Indian economy is growing much faster and, in fact, the fastest.
Commerce Minister Nirmala Sitharaman too had not taken Rajan's remarks lightly, saying better words should have been used.
Rajan today said commonly used words or proverbs can "most easily and deliberately be misinterpreted".
"If we are to have a reasonable public dialogue, we should read words in their context, not stripped of it," he said.
He, however, apologised to the visually-impaired whose association had criticised Rajan for using the proverb.
"I do want to apologise to a section of the population that I did hurt with these words, that is the visually impaired, or the blind," Rajan said.
Queried for his take on India being the 'bright spot', Rajan during last week's interview had said: "I think we have still to get to a place where we feel satisfied. We have this saying 'In the land of the blind, the one-eyed man is king'. We are a little bit that way.
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Listing the long-term benefits of a low-inflationary economy, the governor, who will demit office at the end of his three-year tenure on September 4, said a stable rupee can increase investors confidence in our monetary policy goals; foreign capital inflows will be more reliable and increase in the longer maturity buckets, including in rupee investments.
"This will expand the pool of capital available for our banks and corporations. The government will be able to borrow at low rates, and will be able to extend the maturity of its debt. The poor will not suffer disproportionately due to bouts of sharp inflation, and the middle class will not see its savings eroded," Rajan said.
Rajan, however, was quick to add that for all this to happen and if the money were to indeed become cheaper, "industrialists will have to support efforts to improve loan recovery so that banks and bond markets feel comfortable with low credit spreads".
"The central and state governments have to continue on the path of fiscal consolidation so that they borrow less and thus spend less on interest payments; households will have to adjust to lower nominal rates, but must recognise that higher real rates make their savings more productive and they will find it worthwhile to save more to finance the enormous investment needs of the country," he said.
On the MPC, Rajan said an inflation-focused monetary policy framework means "better coordination between the government and the central bank as they go towards the common goal of macro stability. Further, the central bank can serve the economy and the cause of growth best by keeping inflation low and stable around the target given by the government."
Stating that there is no long-term trade-off between growth and inflation, he said the best way for a central bank to ensure sustainable growth is to keep demand close to supply so that inflation remains moderate, and the other factors that drive growth, such as good governance, can take centre stage.
"We can never abandon inflation to focus on growth", Rajan said, adding "the best way the monetary authority can support growth over the medium-term is to anchor inflation at low levels so that policy rates can also be low.
